Britons' debt shows first fall since records began
The amount of debt Britons owe fell for the first time since records began during July, figures showed today.
People repaid £635m more than they borrowed during the month, reducing outstanding lending to £1.456trn.
The drop, which was the first since the Bank of England began collecting data in its current format in 1993, was driven by a fall in both mortgage lending and unsecured credit.
Homeowners repaid £418m more than they borrowed during the month, due to a combination of the ongoing problems in the mortgage market restricting new advances, and people using low interest rates as an opportunity to pay down their debt quicker.
There was also a £217m reduction in unsecured debt, as strong repayments of loans and overdrafts offset a £92m rise in credit card borrowing.
Benjamin Williamson, an economist at the centre for economics and business research, said: "Today's news will not make happy reading for policymakers who have taken significant steps over the last year to encourage greater volumes of lending throughout the economy.
"While today's data are surprising, it is important to remember that this monthly net change is relatively small given the stock of lending in the economy."
The negative net mortgage lending figure, which was also the first on record, reflects the ongoing problems in the mortgage market, as lenders struggle to raise the funds they need to advance to consumers.
Separate figures from the Building Societies Association, also released today, showed that mortgage customers repaid £577m more during July than was lent, the seventh consecutive month during which the figure has been negative.
The sector also suffered a £1.36bn reduction in the level of savings consumers held with it, the sixth fall this year, further reducing the level of funds available to mutuals for mortgage lending.
Adrian Coles, director general of the BSA, warned that mortgage lending was likely to remain subdued for the rest of the year, due to the difficulties lenders faced in raising funds.
The British Bankers' Association said last week that net lending in July fell to its lowest level since October 2000, while specialist lenders are now largely absent from the mortgage market, further reducing the availability of home loans.
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said: "The sharp fall in net lending during the month demonstrates that lenders still remain a little hesitant to increase the total pot of money committed to the mortgage market.
"Significantly, the mortgage repayments increased to their highest level since March, implying that existing funds are being recycled rather than new monies being added to the mortgage market."
But there was some better news, with the number of mortgages approved for house purchase rising for the sixth month in a row to 50,123, the highest level since April 2008.
Malcolm Barr, of JPMorgan Chase Bank, said the ongoing rise in approvals for house purchase suggested the weakness in net mortgage lending was likely to prove temporary.
But economists warned that the housing market still remained fragile despite recent reports of price rises and evidence that buyers are returning to the market.
Vicky Redwood, UK economist at Capital Economics, said: "The further 2,000 rise in mortgage approvals for new house purchase to 50,100 in July is modestly encouraging - but at that pace of improvement, it will take several months yet for housing activity to reach the levels consistent with sustained rises in house prices."
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