BBA statistics director, David Dooks said:
"However, at the same time, the household sector generally is focusing on debt repayment amid inflated household expenses and a continuing air of uncertainty, so we see a reluctance to let net borrowing rise, with people preferring to use their bank account cash for expenditure.
"Business prospects are even more attuned to the state of the economy in the UK and in overseas trading markets, with borrowing intentions for growth or investment plans generally staying on the back-burner.”
Annual growth of 1.5% in the banks’ net mortgage lending continues to outstrip annual growth of 0.6% across the whole lending market in November.
Unsecured lending contracted by 1.4% in 2011, while personal deposits rose by only 2.5%.
Throughout 2011, deposits and savings increased by a net £16bn compared with £31bn in 2010, as the incentive for holding bank deposits gave way to paying down debt and using cash for household expenditure.
Gross mortgage lending of £9.0bn in December was the strongest month of last year, some 12% higher than in December 2010.
The small upturn in house purchase approvals over the second half of 2011 led to stronger gross mortgage lending, but with capital repayment by householders remaining at a high level, net mortgage lending increased by only £0.7bn in December and continues to be very subdued by historical comparison.
Approval activity in 2011 remained similar to the previous two years. The number of house purchase applications approved in 2011 was very similar to 2010, but remortgage approvals were up 3% in 2011.
The average house purchase value (£145,200) was similar to levels a year earlier.
Approvals for other secured lending in 2011 continued to decline, being some 13.5% lower in 2011 than in 2010 and less than half the number seen in 2007.
Year on year retail sales growth in December was reflected in the increase in the number of credit card purchases in the month. New spending on cards was above the recent six month average, though as regularly seen, monthly spending is regularly more than offset by repayments.
Demand from consumers for loans and overdrafts remains at levels similar to those during the past two years, with loan repayments continuing to outweigh new borrowing.
Demand for borrowing from industry remains subdued as economic concerns and confidence impact business borrowing behaviour, particularly in the manufacturing and construction sectors.
David Brown, commercial director of LSL Property Services, comments:
“The mortgage market finished the year with a flourish in December, but it’s difficult to see how far gross lending can increase this year, given the state of the wider economy.
"There has been some welcome positive news, with lenders such as HSBC stating their intent to up their commitment to the mortgage market in the coming 12 months.
"But since the economy is shrinking, and banks and building societies are seeing their funding squeezed by the financial turmoil on the Continent, while there might be slight improvements, we shouldn’t see house purchase lending leap up in 2012.
"As a result, the private rented sector will be more important than ever for the UK’s housing market, and demand from would-be buyers won’t fall away any time soon.”
Nick Hopkinson, Director of property company, PPR Estates, comments:
“Mortgage lending by the major high-street banks collapsed at the end of 2011 with the number of new loans approved for house purchase falling to only 24,285 across the whole of the UK in December; over 31% down on the average number of loan approvals during the rest of last year.
"This is not just a seasonal dip but clear evidence of the inter-bank lending freeze that the ongoing Euro-crisis is causing. Inter-bank lending is crucial to the availability of mortgage finance.
"The British banks are up to their necks in Euro-debt and until that systemic problem is properly addressed it is difficult to see any confidence returning to the inter-bank lending market.
“It is increasingly clear that the overall fortunes of UK PLC are inextricably linked to our European partners with the whole economy shrinking in Q4.
"With unemployment likely to increase towards 3 million this year and inflation and austerity squeezing households and businesses, house prices and sales volumes will remain under severe downward pressure for the foreseeable future.
"Even if you can find a bank who really has any money to lend at the moment, perfect credit scores and huge deposits remain essential pre-requisites for anyone brave enough to commit to a UK house purchase as we head into 2012.”
Paul Hunt, managing director of Phoebus Software said:
“The fall of GDP in the final quarter of last year makes these BBA numbers are all the more remarkable. Those who complain lending volumes are still far below the long term average should count their blessings.
"Stop-start growth in the UK economy and potential disaster in those of our main trading partners could have caused lenders to button up their wallets and head for the hills.
"Instead, the high street banks boosted their net lending activity 1.5% last year and last month injected 12% more into the property market than they did in December 2010.
"This is a show of defiant confidence in the UK’s economy and lenders should be commended for it”.
