Weak lending figures as consumers shy away from credit card spending

Bank of England data released this morning showed total net lending to individuals rose by £1.0 billion in November compared with October. The figure is in line with the six-month average and also confirms that mortgage lending remains depressed.

Total lending secured on dwellings (i.e. mortgage approvals) rose by £0.6 billion over the month to November, which is below the six-month average of £0.7 billion. The number of mortgage approvals over the month totalled 52,854, which is only slightly higher than the six-month average of 50,266. The data also shows that value of a typical mortgage has fallen marginally over the month which indicates downward pressure on house prices in Q4 2011. In light of the rising costs of living and weak employment figures witnessed during the last quarter of 2011, it makes sense that house price growth had suffered during this period as buyer confidence has been tested. Nevertheless, our forecasts pencil a 1.6% annual rise in house prices this year, as price growth is propped up constrained housing supply, despite the presence of a beleaguered mortgage market. Indeed, the latest housebuilding figures show that 23,410 housing starts were approved, in the three months to September 2011 – 1% lower than in the three months to June and 50% below the December 2005 peak.

Growth in consumer credit (mainly credit card lending) has waned in recent months as households have reined in discretionary spending. The rise in consumer credit was £0.4 billion over the month to November. Taking into account the weak Christmas sales, we expect total consumer credit to have grown by only £1.0 billion in Q4 2011 compared to £1.3 billion in Q3 2011.

We expect that retailers will cut their prices in January after a poor Christmas trading period. This is likely to support retail sales volumes in the immediate future and prop up demand for consumer credit. However, looking further ahead into 2012, demand for lending will be tested by a knockback in consumer confidence as unemployment is forecast to rise and the public sector job cuts start to bite.

Source – CEBR
Source – www.creditman.co.uk