By The Bank of England’s monthly statistics for May can be seen here, and reveal significant trends in borrowing and deposits by households and businesses, offering valuable insights for understanding economic developments in the UK banking system.
Mortgage Lending and Approvals
- Mortgage Debt Repayment: Individuals repaid a net £0.1 billion in mortgage debt, following a record £1.5 billion net repayment in April.
- Mortgage Approvals: Net approvals for house purchases increased from 49,000 in April to 50,500 in May. Remortgaging approvals rose from 32,500 to 33,600 in the same period.
- Interest Rates: The effective interest rate on newly drawn mortgages increased by 10 basis points to 4.56%. The rate on outstanding mortgages also rose from 2.75% in April to 2.82% in May.
Consumer Credit
- Net Borrowing: Net borrowing on consumer credit decreased from £1.5 billion in April to £1.1 billion in May. This included £0.6 billion on credit cards and £0.5 billion through other forms of consumer credit.
- Interest Rates: The effective interest rate on interest-charging overdrafts fell from 21.86% to 21.78%. New personal loans saw a slight decrease in rates to 8.27%, while interest-bearing credit cards reached a record high rate of 20.44%.
Household Deposits
- Withdrawals: Households withdrew a net £4.6 billion from banks and building societies, the highest on record since October 1997. Net withdrawals from interest-bearing sight deposits surged to £11.4 billion.
- Deposits: Despite significant withdrawals, time deposits saw net inflows of £4.9 billion, and ISAs had a net inflow of £3.3 billion.
- Interest Rates: The effective interest rate on new time deposits rose to 3.95%, while the rate on outstanding time deposits increased to 2.56%. The rate on stock sight deposits dropped to 1.33%.
Business Borrowing and Deposits
- Bank Loans: UK non-financial businesses repaid a net £0.6 billion in bank and building society loans. Net borrowing by large non-financial businesses decreased to £0.4 billion, while SMEs repaid £1.0 billion.
- Interest Rates: The effective interest rate on new borrowing for large businesses rose to 6.32%, and for SMEs, it increased to 6.86%.
- Market Finance: Private non-financial companies (PNFCs) made net repayments of £1.6 billion in market finance, including £2.4 billion in equity buybacks.
- Deposits: UK non-financial businesses deposited £9.8 billion with banks and building societies, the first net deposits since August 2022. The effective rate on new time deposits increased to 3.94%.
Aggregate Money and Lending
- Sterling Money (M4ex): The net flow of sterling money decreased to -£4.6 billion, driven primarily by household withdrawals.
- Sterling Net Lending (M4Lex): The flow of sterling net lending to private sector companies and households rose from -£1.0 billion in April to £0.9 billion in May.
Summary
The data highlights a mix of trends: a modest increase in mortgage approvals and rising interest rates, significant household withdrawals from banks, and a decrease in consumer credit borrowing. For businesses, borrowing costs are rising, but deposits have seen a notable increase. These insights help understand the ongoing adjustments in the UK economy and the financial behavior of households and businesses amid changing economic conditions
Industry comments:
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: “Mortgage approvals for new purchases dipped slightly on the previous month, perhaps reflecting stubbornly high mortgage rates, which may have raised borrower concerns with regards to affordability and confidence.
“Remortgaging numbers decreased again as borrowers chose to stick with their existing lender and do a product transfer rather than go through the additional hassle of refinancing to another lender.
“With inflation hitting its 2 per cent target, an interest rate cut is increasingly likely, which will boost the market and give lenders more confidence to price their mortgage rates lower.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: “We are not really surprised that mortgage approvals are down a bit this month. In our offices, sales agreed numbers are still good as buyers and sellers shrug off concerns about the election but more importantly perhaps valuation appraisals and listings are on the up, which has meant prices are softening a little.
“Approvals are always a very good indicator of demand in the recent past and near-term transactions to come.
“Certainly we are seeing no signs of withdrawals or heavy negotiations so expect more of the sane or even slightly better as hopefully mortgage rates start to drop over the next quarter.”
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