Debt consolidation action may be leading to lending drop

New data has added fuel to suggestions that debt consolidation measures may be causing consumers to trim their borrowing as the focus shifts from borrowing money to paying it back.

The Finance and Leasing Association (FLA) revealed its members saw overall lending drop by one per cent in the year to July, with car finance and second mortgages the only form of borrowings to increase, up by two per cent and eight per cent respectively.

Store instalment credit dipped by 14 per cent and store cards plummeted by 12 per cent, while credit cards and personal loan levels were two per cent lower.

The overall level of lending by the body in the 12-month period was £51.2 billion.

Acknowledging the changing attitudes of consumers, FLA head of consumer finance Fiona Hoyle said: "Consumers are cautious about spending on the high street. When they do decide to borrow, they focus on essential expenditure like buying a car, carrying out home improvements and debt consolidation."

She claimed the consumer credit market may shrink further due to the effects of proposed new government regulation on the industry.

However, those who are engaged in debt consolidation may find this liberates them financially, with less of their income being used to pay off debts and more being available for other purposes.

Other recent pieces of data showing consumers are consolidating debt include British Bankers Association figures for August indicating nearly £100 million more was paid back on credit cards than was spent on them during the month.

By Joe White