Increased borrowing in December
Mon 1st Feb 10 - 12:56

For the first time since June 2009 the amount being borrowed on credit cards, loans and overdrafts was greater than the amount being repaid by consumers in the UK. This is a surprising change in the trend we’ve seen so far - during an economic downturn consumers’ tend to pay off debts, especially when interest rates are so low.

The main reason for this increase was credit card borrowing, which increased by £195 million. With personal loans and overdraft borrowing the opposite was true with repayments still higher by £143 million.

Is this increased spending on plastic a direct result of consumer Christmas spending? Andrew Goodwin of Ernst and Young said: "The small increase in consumer credit is likely to be connected to consumers bringing forward purchases to avoid the VAT increase and a relapse is likely next month,"

"The household sector is continuing to deleverage and we expect consumers to provide little support to the recovery as it develops this year."

The number of approved mortgages for purchases was down in December 2009 to 59,023 when compared to November 2009 but this was still higher than the average for the previous 6 months.

£1.2 Billion was double the average of the last 6 months for total net lending to individuals. Most of this lending is mortgage lending.

When it comes to remortgaging consumers are choosing to remain with their current lender as their fixed rate mortgage deal ends. The number of consumers remortgaging increased slightly to 27,276.

The Bank of England Base rate is expected to remain low for the first quarter of 2010 and perhaps further into 2010.

Commenting on Building Society Savers, Brian Morris, BSA’s Head of Savings Policy said "Savers continue to face difficult conditions while the Bank Rate remains at such a very low level, especially with inflation returning in the near term,"

"December is traditionally a slow month for savings as consumers make additional purchases for the Christmas period, and the return of VAT to 17.5% at the end of the year provided a further incentive to spend."

Of course Building Societies have traditionally relied on the business model where savings are used to fund mortgage lending. This model has been hit hard during the downtown; in December £400 million was withdrawn as customers either paid off debts, moved savings to higher interest rate accounts or funded Christmas spending.

Building societies net lending fell by £283 million in December 2009, this compares to an increase of £273 million in December of 2008.

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