The Bank of England figures showed today that for the first time since 1993, people paid off mortgage debt faster last month than they took on new debt, suggesting that a real housing market recovery could be on its ways.
People are paying off their debt, taking advantage of the current low-interest rate
According to the Bank, mortgage repayments exceeded new borrowing by £418m in July, as people are taking advantage of the period of ultra-low interest rates to pay off the capital on their mortgages, especially if they have benefited from being on a tracker mortgage.
Consumer Credit also fell
For the first time since 1993, consumer credit also fell back slightly, showing that households are also responding to the economic downturn by consolidating their finances, getting rid of debt and restraining for any new credit.
Although there was a slight increase in the new mortgage approvals, but as the figures show, it increased to 50,000 last month from 48,000 in June, but they remain way below the 80,000 level consistent with rising house prices.
New lending largely being offset by repayments
David Dooks of the British Bankers’ Association said that the numbers of mortgages approved for house purchase each month by the high street banks have continued to recover from last November’s low point, but new lending is largely being offset by repayments.
According to The Building Societies Association, its customers borrowed £2bn in July, the highest monthly figure this year, but they repaid £2.65bn.
Bank lending to non-financial companies in July fell by a hefty £8.4bn, or 1.7%, on the month, as shown by the figures given by Bank of England.
Bank of England’s attempts to boost lending are having little effect
Vince Cable, The Liberal Democrat economic spokesman said that the figures show that businesses right across the country are continuing to feel the squeeze of the credit crunch.
And if the firms are unable to access credit, it is likely that there will be even more companies going under, deepening the recession and driving up unemployment.
It is becoming clear that the Bank of England’s attempts to boost lending are only having a limited impact as banks continue to hoard money.
