Consumers reduce debt and increase savings

The Momentum UK Team 25 September 2012

There was an overall decline in unsecured debt in as repayment outstrips new lending on loans in August, according to the British Bankers’ Association (BBA).

Demand for bank loans and overdrafts was “weak”, as many savers strive for better rates on their savings. Personal deposits rose by 5.8% in the year leading up to August 2011.

The total level of unsecured borrowing fell by 3.31%, as consumers showed a reluctance to take on additional unsecured lending in the form of loan, although credit card lending increased slightly due to accumulating interest.

David Dooks, BBA Statistics director said:

"People are acting conservatively in this weak economic environment, maintaining debt repayments and building up deposits, particularly in ISAs."

Outstanding unsecured loan amounts are now nearly half of the level seen at the peak towards the end of 2007 and the beginning of 2008 according to the BBA.

The housing market remained subdued in August with net mortgage lending up 0.6% since August 2011, but a showing a 13% decline in mortgage approvals across the same time period.

Dooks said:

“Household mortgage approvals are improving slightly but unsecured borrowing continues to be subdued.”

Martin Stewart, director of mortgage broker London Money said:

"It is hard to imagine it, but activity levels are significantly down on a year ago. For a number of months now, the mortgage and property markets have been in reverse.

"The first two weeks of September were also uneventful but in the past week or so things have finally started to pick up."