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Consumers reined back their borrowing in December, repaying £0.4bn of unsecured borrowing through credit cards, overdrafts and loans, figures from the British Bankers' Association (BBA) showed today.
Despite heavy discounting by retailers the usual pre-Christmas borrowing binge failed to materialise, with repayments on credit cards outstripping new spending, and new loans down by a third year-on-year.
The BBA said £218m was paid off credit cards during the month, while £135m was paid off personal loans and overdrafts. Spending on credit cards totalled £6.8bn, down 8.9% on the previous December and below the six-month average of £7.1bn.
The number of purchases made on credit cards fell to 98.2m – 5.9% below December 2007 year-on-year. New borrowing through personal loans totalled £1.7bn – 38% below the figure for December 2007.
Instead of borrowing in the run-up to Christmas, consumers seem to have turned to saving. A total of £4bn was paid into banks during December, broadly in line with November's figure and considerably higher than the six-month average of £1.3bn.
Howard Archer, chief UK economist at his IHS Global Insight, said: "Going forward, consumer borrowing will be limited by ongoing very tight lending conditions, while many people are likely to be increasingly keen to rein in their borrowing.
"Rising debt levels, historically low household savings rates, plunging house prices and sharply weakened equity markets mean that there is a pressing need for many consumers to improve their finances. Furthermore, we suspect that very serious concerns over jobs and the economic outlook will cause people to try to save more, if they can."
Mortgage approvals
Concerns over rising unemployment and falling house prices – combined with a lack of affordable funding – have also taken their toll on the mortgage market.
The BBA figures also underline how much lending to buyers and remortgagors slowed last year. It said the number of approvals to homebuyers had fallen by 52% in 2008, while remortgagors were down by 14%.
The number of mortgages approved for house purchase rose by 27% in December to 22,051, but the figure was 47% lower than in December 2007, and the BBA said the increase should not be taken as a sign that the market had recovered.
"The significant falls in Bank [interest] rate and the financial sector turmoil affected both lender and customer activity in November and December, so monthly movements are less indicative than usual of trends," it said.
The BBA said the increase is approvals was likely to "reflect delayed activity from November" rather than a surge of new interest from borrowers.
Figures for gross mortgage lending showed the main high street banks granted mortgages worth a total of £170bn last year, 23% below 2007's total of £221bn.
Although sharp, the fall is less pronounced than across the market as a whole, where lending fell by half over the year. The BBA said this showed how concentrated the mortgage market had become in 2007.
The December figures showed net mortgage lending, which takes into account repayments and redemptions, was up by £2.9bn over the month, compared with a six-month average of £3.5bn.
The BBA's statistics director, David Dooks, said: "The banks approved less than half the 2007 number of loans for house purchase, reflecting falling demand from households facing greater economic uncertainty and double-digit falls in house prices over the year, which led to a wait-and-see mentality."
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