U.K. Demand for Credit Slowed in Month After Vote to Quit EU

  • July mortgage approvals fall to lowest since January 2015
  • Consumer-credit growth drops below average of past six months

U.K. mortgage approvals slumped to an 18-month low in July and consumer borrowing slowed following the decision to leave the European Union.

Banks and mutually owned lenders signed off on 60,912 home loans, the fewest since January 2015, the Bank of England said on Tuesday. Unsecured lending rose by 1.2 billion pounds ($1.6 billion), the least in almost a year and well below the 1.6 billion pounds averaged over the past six months.

The figures point to a slowdown in the borrowing and spending splurge that have left consumer credit running at an annual growth rate of more than 10 percent. The backdrop for consumers is weakening as the economy cools in the wake of the June 23 Brexit vote and quickening inflation erodes purchasing power.

Mortgage demand has subsided since a tax hike on investment properties took effect in April and the outlook is for the housing market to cool further. Lending rose by 2.7 billion pounds in July, below the six-month average of 3.5 billion pounds. On the consumer-credit side, personal loans excluding credit-card debt rose just 700 million pounds, half the pace of the previous month, suggesting weaker demand for big-ticket items such as vehicles.

‘Less Benign’

“August may see some recovery, in line with other economic indicators and aided by further declines in borrowing costs,” said Martin Beck, senior economic adviser to the EY ITEM Club. “But longer-term, a less benign environment for consumers, reflecting a rise in unemployment and the squeeze on incomes from higher inflation, suggests that households’ appetite to borrow will stay relatively subdued.”

Low borrowing costs have fueled demand for credit, and loans got even cheaper this month when the BOE cut its benchmark rate to 0.25 percent. In July, the effective interest rate on new secured loans fell 10 basis points to a record-low 2.31 percent, according to the BOE.

Business lending showed a more positive picture, with net loans to non-financial firms doubling to 2.2 billion pounds in July, of which smaller companies accounted for 600 million pounds. An underlying gauge of M4, the broadest measure of money supply, rose by 14.7 percent on a 3-month annualized basis.

The BOE also said that overseas investors sold a net 4.7 billion pounds of gilts, which have surged over the past two months as concerns about Brexit boosted the appeal of fixed-income debt. They bought a net 7.9 billion pounds of gilts in June.

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