Britons repaying £100m more than they borrowed

Figures from the British Bankers’ Association (BBA) showed a net repayment of £100 million in unsecured consumer credit lending in August, compared to £100m borrowing in July. The surplus, which comes amid falling consumer confidence and warnings over the health of the UK economy, was driven by a net repayment of loans and overdrafts, while credit card spending was flat. However, consumer credit debt, which takes in credit debt as of June, currently stands at £210 billion. A spokesman for Consumer Focus Scotland said that it was too early to say whether or not this figure represented a trend: “Many people will be bringing their finances back under control by spending less on their cards and trying to pay back more. “However, credit card debt remains a signifcant problem and too many people facing hard times get themselves into more debt by using their credit cards because they simply have no cash left.” Elsewhere, the BBA showed a net repayment of £700m on mortgage lending last month, compared to a net repayment of £900m in July, while the number of mortgage approvals increased to 78,288 from 75,314. However, one expert has warned the figures were a sign bank lending was drying up as banks braced themselves for more economic bad news. Howard Archer, chief UK and European economist at IHS Global Insight, said: “The renewed net repayment in unsecured consumer credit in August indicates consumer appetite for taking on new borrowing is very low while there is also a strong desire of many consumers to reduce their debt. “Consumer desire to get a tighter grip on their finances is the consequence of current very low and falling consumer confidence, which reflects heightened concern over the outlook for the economy and jobs.” It is thought the data will fuel pressure on the banks which have pledged to increase the availability of credit to small and medium-sized businesses in its Project Merlin agreement with the coalition government at Westminster. But economist Jonathan Davis warned that, in the context of the overall consumer credit debt level, a repayment of £100m was not a significant reduction. He added that he believed banks were squeezing lending as the eurozone crisis worsens, forcing the repayment of credit card debt: “They [the banks] know that, when the likes of Italy and Greece go under, they are going to be hammered for billions and billions, so they are just trying to keep their capital intact as much as they possible can pending the soon-to-be massive losses.” He said this meant fewer people were being allowed to increase their credit card debt by banks or gain access to new credit cards. He added, however, that when it came to the debt crisis most people still “didn’t get it” and were only just starting to face up to the severity of the situation: “The consumer is lacking in confidence, appropriately, because they have debts up to here. Aggregate incomes are rising way below inflation, unemployment is rising, house prices are falling so, of course, there should be a lack of confidence, though actually people should have made the changes to their lifestyles a few years ago instead of waiting for this to engulf them.” Mr Davis said that people could no longer take a “something will turn up” attitude to their finances that had fuelled previous borrowing, and that they now had to buckle under and realise they were facing decades of retrenchment and debt repayment.