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Mortgages squeezed but consumer lending increases

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The squeeze on mortgage lending continued in May as analysts predict that the on-going Eurozone debt crisis is likely to ensure this continues over the coming few months.

Reports from the Bank of England show that mortgage approvals for house purchases fell to 51,098 in May, from 51,823 in April. This followed a 25-month high of 58,610 in January, with the increase being attributed to a rush from first time buyers hoping to take advantage of the stamp duty holiday.

Analysts at Capital Economics say that May’s decline in mortgage approvals was related to the fact that lenders are once again reducing the availability of mortgage credit – further tightened against a backdrop of recession in the UK and the escalating crisis in the Eurozone.

Dr Howard Archer, Chief UK Economist at IHS said: “The appreciable pick up in unsecured consumer credit in May is a surprise but it may have been affected by some people having to borrow more as a consequence of the extended squeeze on their purchasing power.”

But the BoE report also shows that unsecured consumer credit had picked up sharply to £732m in May, from £379m in April, with a modest net borrowing of £70m on credit cards after a net repayment of £60m in April.

The total was driven by a net increase of £603m in other loans and advances in May, which was the largest since December 2010 and up from an increase of £439m in April.

This follows recent data from the Office for National Statistics highlighting real households disposable income fell 0.9% quarter-on-quarter in the first quarter of this year, after a similar drop in the fourth quarter of 2011.

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