The drive to rein in spending and drive down unsecured debt comes at a time when consumer confidence has dropped to an all time low due to dire warnings over the state of the economy and fears of a double dip recession. Primarily loans and overdrafts are being paid off while credit card spending is flat.
Howard Archer, chief UK and European economist at IHS Global Insight, said: "The renewed net repayment in unsecured consumer credit in August indicates that consumer appetite for taking on new borrowing is very low while there is also a strong desire of many consumers to reduce their debt.
"Consumer desire to get a tighter grip on their finances is the consequence of current very low and falling consumer confidence, which reflects heightened concern over the outlook for the economy and jobs."
It is not just unsecured debt that is being repaid at a faster rate than expected. The BBA has reported £700 million of mortgage debt being repaid in August as consumers make the most of the low interest rates and invest in their homes. In addition the number of mortgages approved rose from 75,314 in July to 78,288 in August.
“The banks' new mortgage lending has ticked up in the past couple of months with higher buy-to-let demand,” said David Dooks, statistics director at the BBA. “The general landscape is one of households not wanting to take on more borrowing and businesses waiting for trading conditions to improve before borrowing to expand or invest. Against this backdrop, paying down existing debt dominates the net lending figures."
A spokesperson for Trust Deed Scotland Company, Trustdeeds.net, said: “It’s good news to see so much money being paid down on people’s debts. The worsening economy has really concentrated people’s minds on getting rid of their debts and that’s a good thing. Recent reports have suggested that a quarter of people with unsecured debt pay 40% of their income on repayments, with one in eight people paying up to 80%. These are shocking statistics.”
“However, some of the clients we’ve spoken to feel they get opposing messages from the media and the government. On the one hand, they’re told they must pay down debt to boost the economy. They feel very conflicted at times, but the figures released from BBA shows they are doing what’s best for them and their families – paying back what they owe and looking for ways to get out of debt.”
“On the other hand, they are then told that to pay down too much debt and not spend anything would be bad for economic growth and retail sales.”
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