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News: Higher interest rates putting a break on lending

Fri, 10 Aug 07

Consecutive interest rate rises are starting to have a slowing effect on consumer borrowing, the Building Society Association reports...

The Building Society Association (BSA) has reported that building society lending figures for June 2007 were significantly down on the previous year.  Building society gross advances amounted to £4,650m in June 2007, compared to £5,136m in June 2006.  Net advances were £1,178m in June 2007, versus £1,894m in June 2006.  Approvals were also down - £4,693m in June 2007 compared to £6,046m in June 2006. 

Commenting on the current state of the mortgage market, Brian Morris, Head of Savings Policy at the BSA said:  “The slow start to the summer has continued. Although 2007 started strongly, it seems the impact of successive interest rate rises is now being felt and is affecting affordability. Typically, building societies are maintaining robust lending criteria and this is a possible explanation of the recent slowdown in building society lending.”

Morris warned: “Borrowers should be careful about overstretching themselves at this time of rising interest rates and take on new borrowing only if they are sure they can afford to service it.  With many commentators expecting another rate rise soon, lending may well cool further over the remainder of the year and into 2008.”

Households struggling to save

Commenting on savings figures, Mr. Morris said: “In the second quarter of 2007, net receipts into savings accounts at building societies grew by 10.6% over the same period last year. This is partly because of some relatively low levels of saving in the late spring last year, but may also reflect higher rates of interest on accounts following the rises in the Bank Rate.”

“However, the inflow in June was 12.3% lower than a year earlier. This suggests that households are finding their finances increasingly tight and that despite the higher rates of interest available, they are having difficulty saving.”

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