Consumer lending plummets

By MICHAEL CLARKE
Updated:

 

HIGHER interest rates have put the brakes on the UK's consumer spending spree and slashed the number of mortages applications.

Figures from the British Bankers' Association reveal banks lent £262m in loans and overdrafts during October, which is almost half the £508m lent in September.

Credit card spending was also down to £351m from the recent average of £433m.

Figures from the Office of National Statistics confirmed the spending slowdown. Retail sales fell 0.4% in October, following a 1.1% increase in September.

Interest rates have risen five times in a year to 4.75% from a low of 3.5% in November last year. Evidence of cooling consumer spending indicates the Bank of England will not increase rates further.

The rate rises have already contributed to falling demand in the housing market and mortgage lending remained flat during October, said the BBA.

Banks lent £4.4bn during the month, the same figure as September and August and well below the October 2003 figure of £6.1bn.

The Council of Mortgage Lenders said the number of loan approvals fell 9% to 90,000, while separate figures from the Building Societies Association showed year-on-year lending dropped 58% in October.

The value of mortgage approvals - loans agreed but not yet made - was £3.2bn in October, down from just under £5bn a year ago.

However, saving has increased by 58%, with £1bn being stashed away in building societies during October.

BBA director of statistics David Dooks said: 'Mortgage lending continues to reflect reduced demand compared to the earlier part of this year and consumer credit was also weaker in October, suggesting that the interest rate policy, a slower housing market and tighter household budgets are impacting on consumers' appetite for borrowing.'

BSA director general Adrian Coles said people are taking a more cautious approach to the housing market.

He added: 'Caution is also order of the day in the savings market as people are choosing cash accounts, over investing in the stock market.'

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