Jumps in business and consumer lending 'a blip'

Consumer and business lending jumped in January, Bank of England data showed on Friday.

House purchase mortgage approvals jumped to 66,800 in January from 64,500 in December, while economists had expected a drop to 63,400.

Net consumer credit increased £1.1bn, above the six month average of £0.9bn and the £0.8bn consensus estimate.

Business borrowing from banks and financial markets leapt to £9.2bn compared to the month before, compared to the £2.4bn average seen in 2018.

Bank lending to large businesses now is growing at a 6% year-over-year rate, which the BoE said largely reflected a rise in M&A activity from large companies.

"We suspect that the wider pick-up in borrowing also reflects firms locking-in finance ahead of Brexit, in case financial market gum up in a no-deal scenario," said economist Samuel Tombs at Pantheon Macroeconomics.

Companies issued the most commercial paper, a form of unsecured short-term debt, since the BoE began compiling records in 2003. However bond markets saw “little activity”.

Figures from the manufacturing sector showed businesses were increasing stockpiles of completed goods and inputs ahead of Brexit.

"The jump in mortgage approvals in January goes against the grain of all other housing market evidence," said Tombs, referring to RICS and the National Association of Estate Agents surveys showing that house-buyer demand is falling rapidly.

"With the exception of very high LTV loans, which account for only a small fraction of the market, mortgage rates no longer are falling. The Help to Buy Scheme still is subsidising new home purchases, but there has been no step change in financial support. We also know from the experience of the 2016 referendum and past general elections that political uncertainty usually persuades many would-be buyers to defer purchases. Accordingly, the jump in approvals likely is a blip; we expect mortgage lending to fall back over the coming months," he said.

However, mortgage broker Andrew Montlake, director at Coreco, argued that while many prospective homebuyers are waiting for more certainty, the current uncertainty is actually strengthening their hands.

“They are waiting for a window of opportunity and may be disappointed when they discover that this was it."

With the mortgage market being driven by remortgages and first time buyers benefiting from Help to Buy, reduced landlord competition, a strong jobs market and the Bank of Mum and Dad, he said "now is a perfect time to buy" for FTBs, which he saw as a fact underlined by the rise in approvals for house purchase in January.

"There is so much competition in the market that a growing number of lenders are shifting their attention towards higher LTV loans and rates are coming down as a result. This is providing a real boost to first time buyers.

“Right now, buyers hold all the cards and sellers are increasingly waking up to the fact that if they want to sell, they need to lower their asking prices. There is still a disconnect between the expectations of buyers and sellers, but it is considerably less pronounced.

“What we’re also seeing is a lot of pent-up demand come through. People have been holding off for quite some time and are now finally starting to act. While it’s a buyers’ market at present, that could change almost overnight in the event that a deal is struck with Brussels."