Credit card borrowing falls

New borrowing on credit cards fell to an all-time low in July as consumers continued to rein in their exposure to unsecured debt, figures showed today.

The British Bankers' Association (BBA), whose members provide 70% of credit card lending in the UK, said spending of £7bn over the month was the lowest figure since July 2002 and had been exceeded by repayments.

Overall borrowing on plastic fell by £0.3bn over the month, following a similar drop in borrowing in June. The BBA said over the first six months of the year spending on plastic was down by an average of £0.1bn a month, suggesting the contraction was speeding up.

Net lending on loans and overdrafts has picked up over the past few months, with July seeing a £0.7bn rise in outstanding balances, but this was up from a below average figure in June.

Year-on-year figures show that unsecured consumer borrowing has risen by 4% since last July - half the rate recorded 12 months ago.

Meanwhile, mortgage lending remained buoyant in July, the BBA said, with gross lending of £19.1bn representing a 19% increase on the same period last year.

The number of mortgages approved but not yet paid out was down 2% on last July's figure at 178,438, but increased house prices pushed the value of those loans up 8% to a total of £18.4bn.

The average loan for a house purchase was £139,200 - 5% higher than a year ago.

But there was a 10% fall in the number of loans secured on people's homes and a 5% fall in the value of these advances, suggesting consumers are also become more cautious about withdrawing equity from their property.

BBA director of statistics, David Dooks, said: "Loans approved for house purchases and remortgaging remain on a constant trend, while demand for equity withdrawal has continued to weaken since the turn of the year.

"The drawdown of loans approved in previous months shows strong mortgage lending approaching the peaks of 2004, ahead of the interest rate rise in early August.

"Meanwhile, unsecured lending is displaying quite a different trend, with the growth rate continuing to decline, largely reflecting the ongoing contraction in credit card borrowing."

The figures represent a period before the latest base rate rise, which will increase the cost of borrowing for consumers with credit cards and variable rate loans and mortgages.

With the UK public's combined debt totalling more than £1bn, advice groups have been warning of an increase in the number of people unable to meet their liabilities.

Figures from the Bank of England support those from the BBA showing that consumers have been cutting down on unsecured borrowing, but personal insolvencies are expected to reach 100,000 this year.