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By Emily Gorton
Staff Writer
4 February 2010
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DEMAND for consumer credit is on the increase again after a long, austerity-driven, move away from unsecured lending.
New figures from the Bank of England show that consumers borrowed more than they repaid in December for the first time since June 2009.
Over the last five months consumers have tended to try to pay off existing debts as the banks' low interest rates severely discouraged saving and further borrowing.
However, lending in the form of loans, credit cards and overdrafts rose by £52m in December.
In the housing market, the number of approved mortgages was slightly lower than in November but the figure was still higher than the average of the last six months.
Plastic Please
The increase in borrowing was driven by the purchase credit card market, borrowing on these rising by £195m.
In contrast, the increase in personal loans and overdrafts remained quite low, repayments higher than new borrowing by £143m.
This may just be to do with the time of year. It is predicted that many consumers are bringing forward purchases to avoid the 17.5% VAT increase.
More Mortgages
A significant amount of new lending also came out of the slowly reviving housing market.
A total of 59,023 mortgages were approved for December which is lower than November by 1,022.
However, this is the first decrease in figures since November 2008, as the market steadily bounced back.
This small dip could be due to the season, which typically sees less mortgage applications being approved.
Some, however, see this dip as reminiscent of a levelling out of mortgage rates, predicting that figures will remain at a constant over 2010.
It is still true though, that the figure for December is higher than the average for the last six months.
Remortgage rates remain at a relatively low level as many choose to stay with their mortgage provider due to low interest rates.
The variable rate promised by banks after the fixed-rate deal expires is currently lower than the hassle of remortgaging.
27,276 people still remortgaged, which is a small rise since November.
Building Societies Diminish
Pressure has been mounting for building societies as less people concentrate on saving.
The low interest rates are the cause of this and the typical role of building societies - to fund mortgage lending - has been greatly disrupted.
£400m was withdrawn from building society accounts over December, customers either transferring their money or paying off their mounting debts.
This meant that balances of building societies fell by £1bn in 2009, a remarkable contrast to the £19bn increase in their balance in 2008.
December saw a fall in building society lending of £283m, again contrasting with the previous year, where December meant an increase in lending of £273m.
Whether these changes are evidence of a new beginning in the world of borrowing, however, remains to be seen.
These new figures may have simply been due to the Christmas month, forcing many to borrow or to spend their building society savings.
We can only wait for figures from 2010 to see whether we're emerging from the slump or this was just an anomaly of the credit world.
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Individual lending for December was £1.2bn higher than the previous month and double the average of the previous six months.