Families pay off credit card debt for first time in 16 years
Figures from the Bank of England showed the level of unsecured debt – personal loans and credit cards – fell for the first time since April 1993. A total of £245 million was paid off during February, far more than economists were expecting.The statistics are the latest to show that worried families are tightening their belts like never before in an attempt to cope with the recession. Last week figures official showed that consumer spending over the last three months had slumped by the greatest amount for 30 years.
The debt figures from the Bank of England also contained some positive news for the housing market. The number of mortgages approved jumped by 19 per cent, with a total of 37,937 loans approved for people buying a home during the month, the highest level since May last year.
While most economists think house prices will continue to fall, some now think the number of house sales may have reached the bottom.
Vicky Redwood, UK economist at Capital Economics, said: "February's household borrowing figures suggest that housing market activity may finally have turned a corner.
"The rise in the number of mortgage approvals for new house purchase... might suggest that the pick up in new buyer inquiries is feeding through into actual activity. With new buyer inquiries still rising, this is clearly quite promising."
Estate agents have reported that more people are coming in through their doors in recent weeks, as rock-bottom interest rates start to slowly trickle through to some lower mortgage deals.
However, while economists were encouraged by the improvement in mortgage approval figures, they were alarmed by the personal debt figures.
Though it is healthy for individual families to be paying off their debt, if every person in the country did so, it would be a disaster for the economy, they warned.
If no one is borrowing anything, it means no one is spending anything, which would ultimately lead to the economy grinding to a halt, said Ben Read, economist at the think tank Centre for Economics and Business Research.
"It is not something that happens very often. For the long-term good of the economy there needs to be this big, structural shift to people saving more and borrowing less, but if everyone tightens their belt very quickly it will be painful," he said.
The repayment of £245 million during February, is in sharp contrast to how consumers have behaved over the last decade, when £1.7 billion was added to the total unsecured debt to the country every month on average.
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