Societies buoyant at surge in borrowing

Hopes that the housing market might finally be inching its way out of its deepest slump in more than 20 years grew yesterday after figures from building societies and banks showed that the number of prospective borrowers climbed significantly last month.

The Building Societies Association said the estimated number of would- be borrowers reached 48,000 in November, up from 42,000 the previous month. There was also a sharp rise in societies' mortgage lending.

In a further sign of buoyancy in the economy, high street banks reported the second-highest amount of new lending to the personal sector. Loans dipped slightly below October's record level.

In addition, broad money growth, fuelled by the sharp increase in personal loans, burst above the Government's 3-9 per cent target range for the first time last month.

The broad measure of money supply, M4, grew by 9.3 per cent in the 12 months to November, the first time it has breached the target since its introduction in early 1993. The Chancellor of the Exchequer and Governor of the Bank of England cited rapid growth of broad money as a reason for cutting base rates by only a quarter point last week.

Simon Briscoe, UK economist at the securities firm Nikko, said: "Its strength will prompt more people to think that the next rate cut might be delayed a little."

The building societies' mortgage commitments, made about 10 weeks before the loan takes place, are often seen as a longer-term indicator of the housing market.

Fuelling hopes that these figures are not a short-term blip, the number of commitments was up by 7.4 per cent in the three months to the end of November.

Lending by the societies rose sharply, up from pounds 295m in October to pounds 865m. Future new loan agreements hit pounds 3.2bn, up from almost pounds 2.9bn in the previous month.

Fears that the societies' upward lending trend was due to the continuing price war with large high street banks were dispelled by further figures from the British Bankers' Association. These showed that the banks' home loans grew from pounds 616m to pounds 677m over the same period.

Ian Shepherdson, UK economist at HSBC Greenwell, said yesterday: "Given that new commitments are by far the best indicator of [future] activity and prices, the outlook for the housing market is now very promising."

Adrian Coles, director general of the Building Societies Association, described the figures as a "welcome reversal" of previously bad results. He said it was hoped they signalled the start of a modest recovery. Thanks to the two recent reductions in mortgage rates, home loan costs are at their lowest level since 1968.

Tim Sweeney, director general of the BBA, said: "Personal credit demand continued to be buoyant in November."

At pounds 947m, new lending to individuals was just over pounds 200m below the previous month's record figure.

Kevin Darlington, UK economist at the brokers Hoare Govett, said: "It would appear that the personal sector is starting to borrow and spend again."

Other lending by the big British banks was more subdued last month. An increase of pounds 93m in lending to manufacturing, mainly to the transport, electrical engineering and food, drink and tobacco industries, was more than offset by a massive pounds 719m repayment of loans by securities firms.

Their pattern of borrowing and repayments is highly erratic, so the underlying trend in bank lending was stronger than the total suggested.

Last month's repayment meant total new lending by banks and building societies dipped by pounds 2bn to pounds 3.4bn in November, to a level 8.2 per cent higher than a year earlier.

Some City economists said the lending figure was inflated by the fact that the Government had not funded all of its deficit through gilt sales last month. The public sector therefore accounted for pounds 2.9bn of November's bank borrowing.

This suggests that some of the strength of lending could unwind in coming months.

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