New mortgages fall 56%

New mortgages for house purchases fell 56.8 per cent in May when compared with a year ago, according to the British Bankers' Association (BBA).

Just £4.3 billion was lent for home purchases over the course of the month, well below the six month average of £6.4 billion.

Some 27,968 loans were approved for home purchase, down from 34,752 in April, and some 56.1 per cent below the level recorded a year ago.

The figures provide further evidence of a dramatically slowing property market, with Nationwide reporting prices have now fallen 4.4 per cent over the course of the last 12 months.

However, remortgaging has continued to grow. Some 63,303 loans were completed for remortgage purposes during May, worth 6.3 per cent more in gross value than May 2007.

"Measures of mortgage activity were lower in May as a result of tighter lending criteria and economic pressures on households," said BBA statistics director, David Dooks.

"Only remortgaging business is holding up, where people need or want to take advantage of deals with other lenders."

Credit card spending has continued to increase.

Up to £7.5 billion was spent on plastic in May, according to the BBA, above the six month average of £7.4 billion and up 4.8 per cent on May 2007.

Over 105.1 million purchases were made during the month on credit cards, again 1.6 per cent up in May last year.

An additional £2.4 billion was also taken in personal loans, with £66.6 billion now outstanding.

"People spent more on credit cards, but repayment levels were lower than expected in May and after April's busy month with people putting money into ISAs, personal deposits were not as strong," continued Mr Dooks.

Personal deposits rose, but less so in May, slightly below the six-month average.

This appears to be a reaction in seasonally adjusted terms after the very strong
April rise, so the average of both months (£ 3.7 billion) is a better indication of current trends.

"On the one hand, consumer borrowing will be limited by tight lending conditions, while many people are likely to be increasingly keen to rein in their borrowing.

"Rising debt levels, low household savings rates and lower equity prices mean that there is a pressing need for many consumers to improve their finances," commented Howard Archer, of Analysts Global Insight.

"Furthermore, we suspect that mounting concerns over the economic outlook will cause people to try to save more, where they can.

"Consequently, an increasing propensity to save seems likely to significantly dampen consumer spending over the coming months," he concluded.

Chris O'Toole