Borrowing levels `fell in January`

Lending by banks and building societies to UK households fell during the first month of 2009, new figures suggest.

According to the Bank of England (BoE), such lending totalled £1.1 billion in January. This was slightly over half the average for the previous six months.

In addition, it was found that the increase in net mortgage lending over the 31-day period was lower than the rise in December and was also below the six-month average.

Meanwhile, the BoE suggested that a total of around 31,000 mortgages for house purchase were secured in January. This was equal to the number in December and was in line with the six-month average.

Commenting on the statistics, Howard Archer, chief UK economist at IHS Global Insight, said: "The BoE reported that mortgage approvals remained mired near record low levels in January at a level consistent with markedly falling house prices.

"This defied expectations of a modest further rise in mortgage approvals from November`s record low."

The BoE also revealed that the number of people remortgaging also fell in January. A total of around 34,000 such deals were approved over the month. This is less than half of the 72,000 who remortgaged in October last year.

In contrast, the BoE revealed that unsecured lending - through credit cards, personal loans and overdrafts - increased in January by £403 million, which is higher than December`s figure of £271 million.

However, such lending remained below the six-month average.

Mr Archer said: "Consumer borrowing is extremely low by past norms and it is likely to be limited over the coming months by ongoing very tight lending conditions, as well as many people increasingly looking to rein in their borrowing."

Last month, the Intermediary Mortgage Lenders Association (IMLA) released figures which suggested that some potential mortgage seekers are turning to the rental market.

It found that 58 per cent of would-be first-time buyers (FTBs) were unable to get a mortgage through their brokers in the final three months of last year. Of these, eight out of ten opted to rent instead of buy a property.

Responding to the statistics, the IMLA`s Peter Williams said: "The FTB end of the market has been hit extremely hard by lenders tightening their loan-to-values. For youngsters without a substantial deposit, the only alternative is renting."

On 5th March, the BoE lowered the UK`s base rate of interest from 1% to 0.5% in a bid to stimulate lending and encourage consumers to invest in property.