‘Business as usual’ for commercial and household lending in the UK

There has been little change in borrowing patterns among UK consumers and businesses since the EU referendum, according to figures released on Wednesday by the British Bankers’ Association (BBA).

The trade association for the UK banking sector said that the report for July, reflecting the period immediately after the vote to leave the European Union, shows that net mortgage borrowing and consumer credit annual growth were identical to the figures in June at 3% and 6% respectively.

Meanwhile, business borrowing picked up in July following a mild contraction in June, and household and business cash deposits continued to grow at a rate similar to that seen in the previous two months.

“The data does not currently suggest borrowing patterns have been significantly affected by the Brexit vote, but it is still early days. Many borrowing decisions will also have been taken before the referendum vote,” explained Rebecca Harding, chief economist at the BBA.

“We are also clearly still a nation of shoppers and the Brexit vote has done nothing to change the fact that we use credit cards for short-term purchases. Strong retail sales figures appear closely associated with strong consumer credit growth.”

In the business sector, the report shows that borrowing by non-financial companies increased by ?2.3bn in July after a small fall in June.

Harding noted that business borrowing is not following the same pattern as business confidence. The data shows a clear upward trend in business borrowing for the last few months, indicating that the decline in June was a blip, probably caused by pre-Brexit nervousness.

“All of this suggests that, for the UK borrower, whether commercial or household, it is business as usual for the time being” Harding concluded. “There is no panic exodus or lock down in borrowing but, as many of the decisions to borrow could well have been made before the Brexit vote, we really should look for longer term trends before we can draw any conclusions.”

Remortgaging activity jumps 22% in June

Mortgage lending in the UK was 22% higher in June, with remortgage activity rising by over a third month-on-month and year-on-year, the Council of Mortgage Lenders (CML) revealed on Tuesday.

The rise in remortgage activity among home-owners is said to reflect the possibility that rates will increase, so borrowers are looking for competitively-priced mortgage deals ahead of higher mortgage rates.

There was also a significant month-on-month increase in first-time buyer activity compared to May this year, however this activity saw little change when compared to June 2014.

Lending to home movers also substantially increased in June, with CML’s figures showing monthly increases and slight yearly increases in volume and value. Home-owner remortgage activity rose by over a third month-on-month and year-on-year.

Buy-to-let activity also continues to grow year-on-year and month-on-month, mainly as a result of by buy-to-let remortgage activity.

During the second quarter 2015, home-owner remortgage activity was higher in volume and value compared to the first quarter of the year and the second quarter of 2014. First-time buyers also increased in number and amount, advancing by over 20%, but lending declined year-on-year compared to the same quarter in 2014, while home mover lending figures showed a quarter-on-quarter increase but year-on-year decline. 

Director general of the CML, Paul Smee, said: “Notable this month is the uptick in remortgage activity among home-owners, perhaps reflecting an increased desire to lock into competitively-priced mortgage deals in advance of any rise in rates. It is likely that people are now beginning to feel a rate rise is a realistic prospect, and not just a distant theoretical possibility.

“After a slower than expected start to the year, lending now appears to be picking up as we expected, and in line with our recently revised forecasts.”

CML is the main trade body representing UK mortgage lenders. Data for its latest Mortgage Survey was sourced from CML’s membership, which includes banks, building societies and other lenders who together undertake around 95% of all residential mortgage lending in the UK.

According to CML, there are 11.1 million mortgages in the UK, with loans worth over £1.3trn.