Britain's housing boom continued in October following a jump in new mortgage lending, but a sharp contraction in business lending appeared to underline the weakness of the recovery.
According to industry figures, new mortgage lending was 32% higher than the same period last year, rising to £9.9bn as borrowers joined the rush to buy a home.
The British Bankers' Association (BBA) said the government-funded Help to Buy scheme and the Bank of England's funding for lending scheme (FLS), which has driven down mortgage costs, were helping first-time buyers get on the property ladder.
BBA's statistics director, David Dooks, said: "The housing market continues to pick up. October's new mortgage borrowing was 32% higher than in October last year and approvals for house purchase were 33% higher. Improving consumer confidence is also leading to the banks seeing higher demand for personal loans."
Unsecured borrowing also rose over the last year as a growth in card borrowing outstripped a fall in the use of overdrafts and personal loans.
But the number of mortgage approvals fell from 75,077 in September to 74,743 in October. Analysts said the decline was a signal that higher prices were deterring some prospective buyers, while forcing borrowers still in the market to take out larger loans.
The average house purchase loan rose from £151,700 in September to £156,400 in October, according to the BBA figures.
Help to Buy, which provides a deposit of up to 20% of a property's value, has supported a recent homebuying surge but credit limits set by banks and a lack of wage rises since 2009 are expected to blunt its impact over the coming year.
Overall borrowing came down as established borrowers continued to repay their loans at a faster pace than new buyers can take them out. So, despite the £9.9bn of gross new mortgage lending, the net figure declined by £30.2bn on a year ago to leave £780bn of mortgage debt still left to repay on housing assets estimated to be worth £4tn.
Worryingly for the Treasury, business lending declined in all major sectors except manufacturing, which still contracted on a year ago, though at a much slower pace. Apart from a brief boom in borrowing by property firms in 2011, business lending in each major sector has contracted on an annualised basis in every year since the financial crash.
On a month-on-month basis, the figures also disappointed after signs of a revival in September. Howard Archer, chief economist at IHS Global Insight, said a fall in net lending to non-financial companies by £940m in October, having seen a month-on-month rise of £2.5bn in September, was "very disappointing".
The September figure marked the largest lift since January 2009 and only the third rise in the past 11 months.
"It remains to be seen if October's relapse in lending was at least partly a correction after the jump in lending in September but it is nevertheless a setback to hopes that banks are becoming more prepared to lend to businesses given the improved economic situation and outlook," he said. "It also raises questions as to whether the extension to the funding for lending scheme (in April to favour lending to smaller and medium-sized businesses is having much impact."
The Bank of England cut the cost of borrowing last year when it launched the FLS. Banks, which could access cheap funds from the central bank, passed them on to mortgage borrowers, but were more reluctant to provide commercial loans.
In April the incentive to make business loans was increased, but banks complained their business clients had little appetite for lending. Archer said there were signs that businesses wanted to increase their borrowing to invest as the economic recovery broadened.
He said: "While low bank lending to businesses earlier this year was clearly at least partly due to low demand for credit from companies, there are signs that firms' desire to borrow is now picking up.
"There was clearly low demand for credit in the early months of this year, with many companies still very wary about borrowing and investing in a prolonged difficult economic environment.
"However, there is evidence that firms are now looking to step up their borrowing as markedly improved economic activity in recent months lifts their confidence and need for capital."
Source; The Guardian.