Approvals were down in July but credit growth was up, suggesting people delaying large not small purchases after Brexit vote, with mortgages approvals 19% lower than in July 2015. Written by Phillip Inman Economics correspondent for http://www.the guardian.com
Banks approved 37,662 mortgages for house purchases last month, down from 39,763 in June and 19% lower than in July 2015, the British Bankers’ Association said.
But robust credit growth, especially higher credit card debt, added to signs that the decision to quit the European Union had little impact on consumers’ appetite for smaller purchases.
Warnings that Britain’s vote to leave the EU on 23 June could tip the economy into recession have so far been contradicted by surveys showing a more muted impact on the economy.
Data from manufacturers, Britain’s biggest housebuilder and UK supermarkets earlier this week pointed to the UK avoiding a recession in the second half of the year.
Some economists have argued that while business and consumer confidence, which fell in July, was bolstered by the Bank of England cutting interest rates and increasing quantitive easing, a reluctance to make investment decision, including buying a home, could harm the economy in the coming months.
Rebecca Harding, the BBA’s chief economist, said the growing use of credit cards before and after the vote showed that short-term borrowing figures were keeping high street tills ringing, but gave little clue as to the mood of bank customers.
“Consumer credit has been growing considerably faster at an annualised rate of 6% than real earnings growth of 2.4% for some months now. This arguably underpinned the growth in retail sales that we saw in July and suggests, year-on-year growth in consumer credit appears reasonably correlated with year-on-year growth in retail sales,” she said.
“The housing market may be giving us a clearer picture of trends. Net mortgage lending continued to rise annually at 3% in July. This figure is identical to the annual increase in June. However, mortgage approvals for house purchases were 19% lower in July than a year earlier.”
Coupled with a 1% monthly increase in the value of loans, “the pressures in the housing market at the moment are actually quite weak”, she added.
Howard Archer, chief UK economist at IHS Global Insight, said: “We suspect that the fundamentals for consumers will become less favourable over the coming months with purchasing power likely diminishing and the labour market softening.”
The BBA figures do not include lending by mutually owned building societies, which accounts for around a third of mortgages.
Figures published on Tuesday by HM Revenue & Customs showed almost as many homes were sold in July as in June, suggesting buyers were not spooked at the outcome of the Brexit vote.
Source: The Guardian