Mortgage lending closed the year in a depressed state with net lending contracting by £298m in December, as homeowners continued to pay off more debt than providers made new loans, figures from the Bank of England showed.
It is only the third time that the Bank has recorded a contraction in net mortgage lending and the fall is the second biggest on record.
The lending level looks set to remain subdued for some time with the number of mortgages approved for house purchase falling by 10 per cent during December to 42,563. That is the lowest level since March 2009.
Levels of 70,000 to 80,000 approvals a month are considered to be consistent with stable house prices and it was not unusual for loan approvals to top 100,000 in busy months prior to the onset of the financial crisis.
Consumer credit borrowing rose but by a relatively modest £181m in December following a net repayment of £70m in November. Credit card lending also inched up by £41m in November, while other loans and advances rose by £140m in total. IHS Global Insight said this reflected people borrowing modestly to pay for Christmas presents and possibly purchases in the January Sales.
Howard Archer, chief UK and European economist of IHS, said: "Despite the modest rise in consumer credit in December it is clear that the consumer appetite for taking on new borrowing remains limited while there is also an ongoing desire of many consumers to reduce their debt.
"There is evidence of this in the Bank of England also reporting that there was a rare net repayment of £298m in mortgage credit in December. This reflects both recent low mortgage activity and a desire of a significant number of homeowners to reduce their debt by paying off more of their mortgages. Consumer desire to keep a tight grip on their finances is a reflection of current very low and falling consumer confidence."Reuse content