Repayment of mortgages now exceeds lending

MORTGAGE repayments outstripped lending for the first time last month as UK households became more cautious, new figures showed yesterday.

Net mortgage lending declined by £78 million – the first reversal in the 16 years that records have been compiled by the British Bankers’ Association (BBA).

The BBA also reported that net lending to non-financial companies rose by £1.3 billion in May after a drop of £1.9bn in April.

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However, Howard Archer, chief UK economist at IHS Global Insight, described the figure as “still very weak, even allowing for the fact that there is low demand for credit and many companies are looking to pay down debt”.

He added: “It is evident that companies are wary about borrowing and investing in the current difficult economic environment.”

In a bid to kick-start the economic recovery, the Bank of England and the Treasury announced a “funding for lending” scheme earlier this month, which will give banks access to cheaper short-term loans, but only if they increase lending to the non-financial sector.

Ed Stansfield, chief property economist at Capital Economics, said: “The drop in net lending can be seen as a natural by-product of the low interest rate environment.”

He added that the figures “seem to add to the evidence that activity across the economy is grinding to a halt as firms and households wait for events in the eurozone to come to a head”.