Borrowing on Loans Exceeds Repayments

Mon, 01 Feb 2010

UK consumers borrowed more than they repaid for the first time in six months in December. Borrowing on credit cards, loan and overdrafts increased by £52 million in December, according to figures from the Bank of England. With interest rates on savings accounts so meagre, consumers have opted to repay their debts in recent months, meaning repayments exceeded new unsecured credit for five consecutive months.

This was not the case in December, however, as a £195 million increase in credit card borrowing made up for the low demand for personal loans and overdrafts. Indeed, total net lending to individuals rose by £1.2 billion in December, twice the average level for the previous six months. Mortgages accounted for the majority of this lending, despite the expected seasonal slump in mortgage approvals in December.

The number of people remortgaging in recent months has hit rock bottom, though December saw this figure increase to 27,276, a possible indication of the strengthening economy.

Andrew Goodwin from Ernst and Young commented that the increase in consumer credit could be explained in connection with the VAT increase in January, which consumers are seeking to avoid by bringing forward purchases. Demand for payday loans is likely to increase as financed purchases increase.
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