Record low interest rates help fuel demand for personal loans and credit cards
Record low interest rates are helping to fuel a strong demand for personal loans and credit cards, as consumer credit grows at its fastest levels in nearly a decade, banks have reported.
The British Bankers' Association (BBA) said consumer credit grew by 6% annually in September, as people increasingly use short-term borrowing to take advantage of cheap interest rates.
The trend has accelerated since the Bank of England recently cut the base rate to 0.25%, making the cost of borrowing even cheaper, the BBA's High Street Banking report said.
Meanwhile, 38,252 mortgage approvals were made to home buyers in September - marking a small increase compared with August - but 15% lower compared with September 2015.
The BBA said this year so far, the number of mortgage approvals for house purchase is running 3% lower than in the same period of 2015.
With low interest rates making mortgage deals attractive, the number of home owners re-mortgaging has held up compared with a year ago. The BBA said 24,841 remortgage loans were given the go-ahead in September, a broadly similar number to the 24,880 deals seen in September 2015.
The number of re-mortgage approvals this year so far is running 15% higher than the same period in 2015.
Net borrowing by non-financial businesses fell back by £312 million in September, following a fall of £104 million in August.
Rebecca Harding, the BBA's chief economist, said: "Consumer credit is growing at its fastest rate since December 2006, driven by strong demand for personal loans and credit cards.
"Consumers are increasingly using short-term borrowing to take advantage of record low interest rates. This trend has accelerated since the Bank of England cut rates in August."
She said that while mortgage approvals picked up slightly in September, the housing market is showing signs of "underlying weakness", with approval levels down compared with a year ago.
Dr Harding continued: "Business borrowing decreased slightly again in September, which may be in part down to uncertainty following the EU referendum.
"There is a longer time lag behind corporate investment decisions so it may take longer for the effect of the interest rate cut to filter through to such borrowing."
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: "We are busy, with numbers holding up quite well and lenders still very keen to lend. There is no shortage of products and plenty of competition in this space."
Howard Archer, chief UK and European economist at IHS Global Insight, said consumers' spending power is likely to be hit in the coming months by the weakened pound and inflation.
He said tougher economic conditions may make people more cautious about their borrowing - "but on the other hand, it may increase the need for some people to borrow".