New figures published this week by the Building Societies Association (BSA) show that due to low interest rates for savers, UK consumers are choosing to use spare cash to repay debts instead.
According to the BSA, its members withdrew more money than they saved in November – making it the ninth consecutive month they had done so.
“There is little incentive for people to increase savings whilst the Bank rate remains at its current low level, and many may opt to repay debt instead.”
“Building societies and other deposit takers are also facing heightened competition from institutions with a government guarantee, which is creating further distortions in the savings market” – Adrian Coles, director-general at the BSA.
These figures were published at the same time the Bank of England announced that the number of approved mortgages for home purchases rose again in November for the twelfth consecutive month.
Credit card lending also saw a slight rise in November, however loans and overdrafts continued to drop in reflection of consumer reluctance in applying for large purchase loans.
By repaying debts off early and regularly, consumers will be able to keep their credit ratings in good order and avoid any damage through missed or defaulted payments.
A committee of MPs have called for an investigation into the UK credit search system, following reports that consumers are being unfairly penalised for shopping around for credit.
The report published by the Treasury Committee follows a recent investigation into credit searches in the UK that discovered consumers who requested many quotes for loans and credit cards were also running up a high number of credit searches – which in some cases was making it harder for the individuals to gain credit.
This means that consumers who were shopping around for their loans and credit cards were having their credit ratings affected by the high number of lender searches on their credit file.
The Treasury Committee is therefore putting pressure on the Office of Fair Trading and the Information Commissioner’s Office to begin an investigation into the fairness of the current credit search system.
“While it is right to protect consumers from potentially reckless lending; equally, they shouldn’t be penalised for shopping around for loans” – Treasury Committee chairman John McFall.
Fiona Hoyle, head of consumer finance at the Finance and Leasing Association, said: “We are pleased that the committee’s report recognises that a balance has to be struck between preventing fraud and allowing consumers to shop around.
“Credit is in any case not refused on the basis of the number of credit searches alone.”
