Consumers have paid back personal loans, credit cards and overdrafts at the fastest rate for more than a year as their appetite for borrowing remains weak, a high street banking report said today.
Repayments have outstripped new borrowing, resulting in a net repayment of £305 million in consumer credit lending in February, the highest net repayment since January last year, the British Bankers' Association (BBA) said.
New spending on credit cards totalled £7 billion, but cautious consumers paid off more than they spent, repaying £7.3 billion, continuing a long-standing trend.
The number of mortgage approvals for house purchase fell back from January's two-year high of just under 38,000 to 33,103 as interest from first-time buyers dropped off.
Estate agents and lenders have previously been reporting a surge in interest from first-time buyers looking to take advantage of a stamp duty concession, which ends tomorrow.
The report said house purchase approvals had dropped off to more "normal" levels as demand from first-time buyers seeking to beat the stamp duty deadline fell back.
Fears have been raised that the surge in first-time buyer interest will be followed by a dip, disrupting the fragile housing market.
But lenders hope that the Government's recently-launched NewBuy scheme, to help those buying a new-build home with just a 5% or 10% deposit rather than the typical 20%, will help to offset this.
The NewBuy scheme is open to both first-time buyers and home movers, although this will not help those trying to buy or sell an existing home.
BBA statistics director David Dooks said: "Businesses and households continue to be cautious about their finances in the face of difficult economic times and this shows up in a reluctance to take on new credit, or where possible, seeking to pay back bank borrowing.
"Confidence will be helped in the coming months by official schemes to support the mortgage market and stimulate business demand for credit."
Gross mortgage lending totalled £7.9 billion in February, a 1.9% drop year-on-year and below the six month average.
High repayments by householders meant that mortgage lending only increased by £545 million in February.
Howard Archer, chief UK and European economist at IHS Global Insight said the net mortgage lending figure was "very low compared to long-term norms".
He said: "This suggests that house owners are looking to take advantage of low mortgage interest rates to reduce their outstanding mortgage levels to improve their balance sheets."
Lenders have been offering some of their cheapest ever deals as the Bank of England maintains the base rate at a 0.5% historic low, but lenders are expected to tighten up on borrowing this year and several have recently announced mortgage hikes.