British mortgage lending slowed sharply in July - BBA

Mortgage lending by British banks slowed sharply in July to its weakest level in three-and-a-half years, the British Bankers' Association said yesterday, while consumer credit remained weak.

Underlying mortgage lending rose by £3.7 billion in July, after a £4.7 billion rise in June and £5 billion in July last year, the BBA said. That was the smallest monthly rise since December 2001.

The association said potential home buyers may have postponed getting mortgages in July in anticipation of the Bank of England's widely expected August interest rate cut.

Economists said the data still pointed to a gradual slowdown in Britain's once-booming housing market.

"These figures continue to suggest that house prices are unlikley to crash in the near-term, although we continue to argue that over the longer-term prices will need to adjust downwards," said George Buckley at Deutsche Bank.

Echoing reports of a slowdown in high street spending, BBA said consumer credit was relatively weak and net credit card lending rose by just £123 million in July - less than half June's £293 million rise.

"This could have reflected... a possible impact of poor weather and the London bombings on consumer sentiment," said BBA director of statistics David Dooks. However, official data yesterday showed retail sales fell 0.3 per cent in July from June, less than expected. They showed few retailers reported lower sales because of deadly London bomb attacks on July 7, although the overall effect was hard to quantify.

Following months of policymakers highlighting a household spending slowdown as a key economic risk, the BoE cut rates for the first time in two years in August to 4.5 per cent from 4.75.

The Council of Mortgage Lenders said yesterday that the reduction could help the housing market stabilise.

The CML said total gross mortgage lending slowed slightly to £25.2 billion in July after £25.7 billion in June and £28.9 billion in July 2004. The number of loans for house purchase fell to 96,000 in July from 101,000 in June, and was much lower than the July 2004 figure of 130,000.

"Today's figures indicate that the housing market has started to stabilise at a new lower level last seen in 2003," said CML Director General Michael Coogan.

Separate figures from the Building Societies Association showed the value of mortgage approvals picked up to £3.928 billion in July from £3.880 billion the month before but were down five per cent from £4.156 billion in July last year.

Net advances fell slightly to £1.004 billion in July from £1.020 billion in June and were down markedly on £1.726 billion in July last year.