The amount of consumer debt in the economy fell in July for the first time since records began in 1993, it emerged.
Figures published by the Bank of England revealed that personal borrowing fell by £600 million in July, mainly because consumers repaid about £418 million more from their mortgages than was advanced during the month in home loans. There was also a net repayment of consumer credit of £217 million, the most on record, as net credit card lending fell to £92 million — the lowest since December.
The Bank said that it was the first time since records began that total net lending to individuals had fallen to show a net repayment. The total amount of debt in the economy owed by individuals, including mortgages, now stands at £1.457 trillion.
The Bank also reported a sharp drop in corporate debt, as private non-financial corporations shored up their balance sheets, paying down £8.4 billion during the month, the biggest fall since records began in 1997.
However, while consumers rush to pay off existing debt, other figures released by the Bank appeared to point to a recovery of confidence in the housing market. The number of mortgages approved during July rose to 50,123, up from the 47,891 home loans approved in June; the figure was below City forecasts but the highest since April 2008.
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Signs that the London housing market is likely to emerge first from the gloom came as Knight Frank reported that prices achieved for some homes in Chelsea, an area favoured by City bankers, were equal to those that it would have expected at the peak of the boom in autumn 2007. The estate agency said that £1 million-plus properties were selling last month for 15 per cent more than prices received for similar properties on the same streets in December last year.
Holiday destinations around the UK also recorded price rises in June and July, according to Nestoria.co.uk, a search website. It said that 19 locations popular with holidaymakers had achieved higher average prices compared with the same period last summer, as “staycationers” — people choosing to stay at home in the UK rather than going on holiday abroad — scouted out buying opportunities.
Safestore, the self-storage company, cited a rise in activity in the housing market after an improvement in the occupancy rate of its units to 110,000 sq ft in the three months to the end of July, up from a decline of 29,000 sq ft in the same period last year.
However, economists remain cautious about a full-blown house price rally because of unemployment and the continued lack of access to mortgage finance.
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said: “The further rise in the number of mortgage approvals during July is testament to the continuing recovery in the housing market. However, the sharp fall in net lending during the month demonstrates that lenders still remain a little hesitant to increase the total pot of money committed to the mortgage market.
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“Significantly, mortgage repayments increased to their highest level in July, since March, implying that existing funds are being recycled rather than new monies being added to the mortgage market.
“We expect mortgages for new purchases to continue to edge upwards over the coming months, ending the year between 55,000 and 60,000, but this level of activity still remains low from a historical perspective.”
Howard Archer, chief UK and European economist at IHS Global Insight, the consultancy, said that signs of recovery in the market remained fragile. “We do not think that a sustainable sharp upward trend in house prices is in the process of developing. Any sustained rise in prices will mean that affordability pressures will move back up at a time when still-pronounced economic weakness, rising unemployment and low wage growth is negative for the housing market.”
Separately, the Bank published figures suggesting that its programme of quantitative easing was working. It said that M4, the broadest measure of UK money supply, rose by 1.5 per cent during July, up from the 1 per cent previously estimated.