UK consumer credit records biggest drop

The total unsecured outstanding loans stood at £228 billion, similar to the January 2008 level.

Consumers pay off debt
The consumers have repaid the highest amount of unsecured loans, reducing their debt by twice the rate analysts had expected.

The consumer credit fell by a net £579 million ($953.7 million) in October following a £299 million fall in September. This is the biggest fall since records started in April 1993.

But there has been an increase in borrowings on credit cards by £134 million in October compared to last month.

Overall, there has been a drop in borrowing by £713 million. This includes fall in bank loans, loans on cars, hire purchase agreements etc.

Building Societies Association director general, Adrian Coles, has explained this fall thus: "There is little incentive for people to increase savings whilst the Bank rate remains at its current low level, and many may opt to repay debt instead.”

Mortgage lending stronger
Though unsecured credit has witnessed a drop, there has been an increase in number of mortgages approved for purchasing houses, a convincing sign that the housing market is on the road to recovery.

The net mortgage lending gained £922 million in October after a £898 million increase in the previous month. Lenders granted 57,345 loans to buy homes, compared with 56,205 in September. It is the highest level in one and half years.

Alan Clarke, an economist at BNP Paribas in London, was quoted by Bloomberg as saying, “It’s encouraging and moving in the right direction to support the housing market.

“We’ll come out of recession in the fourth quarter but I’m not sure we’ll be able to maintain.”