Mortgage approvals for home loans have soared to a five-and-a-half year high as Government stimulus schemes continue to inflate the housing market.
There were 62,226 approvals for home loans in August, the Bank of England said, up from 60,914 in July and the highest level since February 2008.
But loans to small firms continued to slide, slumping by £648 million during the month and 3.2% over the year, as attempts to unblock the credit log-jam falter.
Net lending to firms big and small dropped by £3.8 billion during the month to hit the lowest level since December 2012, showing Britain’s nascent recovery is yet to feed through to higher business borrowing.
Prime Minister David Cameron this weekend revealed plans for an early roll-out of the second stage of the Government’s Help to Buy scheme, which will underwrite 15% of the value of a mortgage, allowing people to buy properties with a 5% deposit.
The launch is expected within weeks, three months ahead of schedule, and follows the first stage of Help to Buy which offers equity loans on newly-built properties. The scheme has sparked worries over a new housing bubble, but Samuel Tombs, economist at Capital Economics, said today’s figures show the mortgage market remains “relatively weak”, with home loans 40% off their pre-crisis levels.
He said: “The Chancellor’s decision to bring forward the second phase of the Help to Buy scheme from the start of next year to this week has the potential to boost the mortgage market before the end of the year.
“But the scheme’s impact will largely depend on how much the Government charges the banks for the insurance. For now, then, there appears to be little evidence that a renewed boom in the housing market is under way.”
Nida Ali, economic adviser to the Ernst & Young Item Club, said: “While we are still far from bubble territory, we could easily advance in that direction if housing supply does not increase in line with demand.”
Ms Ali added: “The story on lending to businesses contrasts with developments on the housing side. Lenders appear to be steering clear of taking on any risk and sticking to housing loans.”
The Government is trying to encourage business lending through its Funding for Lending Scheme, which offers banks and building societies discounted loans in return for boosting the flow of credit.
Adam Marshall, director of policy and external affairs at the British Chambers of Commerce, said slumping business lending was extremely disappointing, and shows that “Britain’s business finance system remains broken”.
He said: “While bigger and older companies can get finance when they need it many young, dynamic, and fast-growing businesses are still frozen out. When these innovative companies can’t get the finance they need, they don’t expand.”
Meanwhile, consumer credit edged up £577 million during the month, and was up 4% during the year. Credit card lending was up 4.5% over the year. Economist Howard Archer said while consumer credit demand remains relatively subdued, improving consumer confidence may mean that people have become more prepared to borrow recently.