Brits have paid off half their personal loans since the financial crisis, with debts at their lowest since 1999

Counting the pennies: Cautious consumers chose to pay off more than they borrowed in 2012

Cautious households are making considerable headway clearing their debts, with the amount owed on personal loans dropping to its lowest level in 14 years, according to a report.

The total balance owed by consumers on all personal loans fell to £34.5billion in December, the lowest figure seen since August 1999 and almost half its pre-financial crisis peak.

The figure has been falling for some time as people try to clear existing debts and steer clear of new loans, the report by the British Bankers’ Association (BBA) said. 
Overall, the outstanding level of non-mortgage consumer borrowing shrank back by 1.6 per cent over the year to December, which was driven by a sharp 7 per cent contraction in personal loan and overdraft lending.
There was a net repayment of £48million in personal loans and overdrafts in December, it added.

However net spending on credit cards increased by £278million in the month, suggesting that people relied more heavily on plastic to get them through Christmas. 
As savings rates became even more abysmal, savers piled their money into cash Isas over the year in search of better rates of interest. Personal deposits increased to 6.1 per cent on the year to December, the BBA said. 

Loans and overdrafts continued to fall over the year while credit card debt continued to rise (Source: BBA)

Households have also been taking advantage of low interest rates to make high mortgage repayments and cut down what they owe, reducing net mortgage lending to a ‘flat balance through much of 2012’, the report said.

BBA statistics director David Dooks said: ‘2012 was a year of holding on to deposits and repaying debt for companies and households.
‘New mortgage lending of £92billion was offset by £91billion of repayments, and slow economic growth also continued to suppress new borrowing demand from consumers and from companies.’

Personal deposits continued to increase over the year as people shored up their savings (Source: BBA)

Howard Archer, chief European and UK economist at IHS Global Insight, said that a significant number of people could have borrowed more on their credit cards in late 2012 to make their finances stretch further over Christmas.
But he added: ‘The impression remains that consumer appetite for taking on new borrowing is limited.’
The BBA's figures also showed that mortgage approvals to home buyers increased for the sixth month in a row in December. There were 33,636 approvals for house purchase in December worth £5.2billion, continuing a trend of increases seen every month since last July.

Lending to businesses continued to drop over all in December as firms continued to reduce their debts (Source: BBA)

Lenders have said they expect house sales to pick up this year amid signs that the market is improving following a Government scheme launched last August to boost lending, which has prompted lenders to slash their mortgage rates.
The BBA's figures also showed that net lending to non-financial companies decreased by £3.5billion in December.
The report said that firms were continuing to reduce their debts while waiting for more certain trading conditions and an increase in consumer confidence.