Author: By Nicky Burridge, Press Association

People reduced their outstanding credit card, loan and overdraft debt by £579
million during the month, the biggest contraction in unsecured lending since
Bank of England records began in their current format in 1993.

It was also only the sixth time on record that repayments for consumer credit
have outstripped new borrowing.

But on the mortgage side, the number of loans approved for house purchase
increased for the 11th consecutive month, rising to 57,345, their highest
level since March 2008.

The contraction in unsecured credit was driven by strong repayments on loans
and overdrafts, with outstanding borrowing through these falling by £713
million during October, the ninth time the figure has been negative during
the past 10 months.

But credit card lending rose by £134 million in October, nearly double the £78
million rise seen during the previous month.

Howard Archer, chief UK and European Economist at IHS Global Insight, said:
“The record, and fourth, successive net repayment in consumer credit in
October is clearly the consequence of many consumers’ desire to reduce their
debt, low demand for credit and a lack of availability of unsecured credit
from banks.”

Net mortgage lending, which strips out redemptions and repayments, totalled
£922 million in October, up slightly on both the previous month and the
six-month average.

But it remained well down on levels of more than £9 billion seen regularly
during 2006 and 2007.

The number of people remortgaging remained subdued, with just 24,596 loans
approved for homeowners switching to a new deal, down on both the previous
month’s figure and the recent average.

Mr Archer said: “The Bank of England data indicate that mortgage activity
continues to firm gradually from the record low level seen in November 2008,
as it is supported by low mortgage interest rates and the significant fall
in house prices from their 2007 peak levels to their March/April 2009
troughs.”

The Building Societies Association also released figures today showing that
mortgage lending among mutuals continued to decline.

Building society mortgage customers repaid £521 million more than the sector
advanced during October, the 10th consecutive month during which mortgage
lending has contracted.

There was also a further sharp fall in the amount of money people held with
the sector during the month, with consumers withdrawing £1.24 billion more
than they paid into building society accounts, the eighth month in a row
that this has happened.

Adrian Coles, director-general of the BSA, said: “There is little incentive
for people to increase savings whilst the Bank rate remains at its current
low level, and many may opt to repay debt instead.

“Building societies and other deposit-takers are also facing heightened
competition from institutions with a Government guarantee, which is creating
further distortions in the savings market.”

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