Personal debt falls for the first time in 16 years

Personal debt has fallen for the first time since records began sixteen years ago.

Mortgage debt and other forms of secured and unsecured borrowing by individuals fell by £600m in July, the Bank of England has announced.

This fall in net lending indicates that individuals actually repaid more than they borrowed in July. This is the first time that lending figures have shown this.

Although consumer credit fell by £200 million, there was a slight increase in credit card borrowing in July.

Although this reduction in personal debt shows a reduced appetite for further borrowing, debt levels remain high for UK householders.

Average UK household debt, excluding mortgages, is £9,226, however this figure rises to £21,457 if the average is based on the number of households who have some form of unsecured loan.

Encouraging for the housing market, is news that the number of mortgage approvals increased in July, compared to June. This points to underlying strength in the housing market.

Commenting on this report from the BoE, Peter Harrison, head of credit cards at moneysupermarket.com, said: “It is encouraging to see a reduction in UK consumer debt levels although this doesn’t mean that the love affair with credit is at an end.”

“UK consumers are definitely being savvier with their borrowing and many consumers are using the low rate environment to overpay on their mortgage borrowing and reduce their overall debt levels.”

Debt problems still threaten families, however, as unemployment levels increase. People with mounting debts may need to seek debt management advice at an early stage to help prevent their financial situation worsening.