Consumer debt rises while lending falls

Consumer borrowing via credit cards, overdrafts and unsecured personal loans rose to an average of £4,724 per UK adult at the end of October, according to new figures compiled by Credit Action.

Taken from the Bank of England statistics released yesterday, Credit Action estimates that average household debt in the UK is £9,120 excluding mortgages. It also said total lending rose by £0.3bn in October, while secured lending increased by £0.9bn.

However, consumer credit lending to individuals fell by £0.6bn. This compares substantially with January 2008, when total lending grew by £8.4bn.

The slow growth rate in total lending, combined with falling consumer borrowing suggests that consumers are beginning to ease their debt levels. With lower savings rates, borrowers are often less likely to save and opt to pay down debt instead.

“Our hope is that people are learning the lessons of over-indebtedness. We have noticed a general trend towards amending attitudes towards debt,” said Chris Tapp, director of Credit Action.

However, Mr Tapp offered a note of caution, citing that the figures indicate both a positive and negative reading.

Banks and building societies have also tightened their lending policies, making it more difficult for consumers to gain access to credit.

“We are not completely convinced that people have changed that much, though we are hopeful. In the past year, people haven’t been able to secure credit, which might explain why borrowing rates are falling.”