Rising confidence has fuelled the first annual increase in consumer credit for four years as shoppers load up their credit cards, major lenders said today.
The British Bankers Association said the figures, showing the first annual growth in unsecured loans since June 2009, marked a “turning point” as consumers are encouraged to spend by a recovering economy.
The total outstanding stock of credit card debt, personal loans and overdrafts rose to £80.1 billion in August, 0.3% higher than the same month a year earlier. This was driven by a £175 million rise in credit-card lending while £99 million in personal loans was paid off. Mortgage lending is also at its highest level since 2009.
BBA statistics director David Dooks said: “People are more confident so they are likely to look at more personal loans and credit card debt. We have also got stimulus in the mortgage market from Help to Buy and the Funding for Lending scheme and the economic numbers are better.
“There’s a growing mood that things are not going to get worse, that we are at a turning point. I would hesitate to use the word adventurous, but consumers are being less defensive.”
The figures also echo comments from Next chief executive Simon Wolfson two weeks ago about the consumer credit squeeze coming to an end. But the Conservative peer also warned over the sustainability of a recovery built on consumer credit and a more buoyant housing market.
IHS Global Insight’s Howard Archer said: “It is likely that markedly improving consumer confidence means that people have become more prepared to borrow in recent months. It may also be that the squeeze on consumer spending coming from inflation running well above earnings growth means that some people are having to borrow more to finance any major spending.”
Total outstanding consumer loans are still almost £30 billion below their pre-recession peak despite the return to year-on-year growth, the BBA said. Lenders granted 38,228 mortgages in August, compared with an average of 3400 over the previous six months.
But net mortgage lending is still virtually flat as the loans are funded by repayments, the BBA added. Lending to businesses is still falling although small business lending remains stable.
