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Economy July 2006

Lending to Individuals

Latest figures from the Major British Banking Groups for June indicated that total sterling lending to the UK private sector showed a net underlying increase of £13.8bn (+1.1%) to £1,228bn. This was higher than last month’s underlying rise of £12.6bn but lower than the average of £15.2bn over the previous six months.

Net mortgage lending rose by an underlying £5.6bn. This was slightly lower than the £5.8bn rise in May but higher than the average of +£5.3bn over the previous six months. In the first half of 2006 mortgage lending was some 18% stronger than in the equivalent period of 2005. Unsecured personal lending fell by £0.1bn in June, compared with an average rise of £0.3bn in the previous six months. Loans & overdrafts rose by £0.2bn, whilst underlying credit card borrowing fell by £0.2bn and has now declined in four of the last six months.

Lending to real estate companies rose by £1.1bn and to hotels and restaurants by £0.3bn, whilst lending to wholesale & retail trade fell by £0.6bn, reversing the £0.7bn rise in May.

House Prices

According to the latest Halifax House Price Index, house prices fell by 1.2% in June. House prices increased by 4.5% in the first half of 2006 with a 2.6% rise during 2006 Q2.

House prices increased in all regions during the second quarter with the exception of Wales. The biggest rises were in Scotland (5.7%), South West (3.8%) and East Anglia (3.5%). The smallest increases were in North West (0.2%) and North (0.9%). Wales showed a slight fall (-0.8%), reflecting the increasing affordability difficulties for buyers in the Principality.

The pick-up in house price inflation in London and the South East over the past year contributed to a slight increase in the ratio between prices in the south and north in 2006 Q2. This follows four years of almost continuous decline in the ratio, tentatively suggesting that the north/south divide is at, or slightly passed, its low point in the current cycle. The average property price in the south stood at 1.58 times the average in the north in 2006 Q2 compared with a peak of 2.19 times in 2002 Q2.