Households made net repayments on products such as credit cards, personal loans and overdrafts at the strongest annual rate in 27 years in February, Bank of England figures show.
With people paying back more than they borrowed, consumer credit borrowing fell by 9.9% annually – marking a new low since records started in 1994, the report said.
Within the total, credit card borrowing shrank by 21% over the year to February, also marking a new low.
During February, people made a total net repayment of £1.2 billion of consumer credit, which the Bank said was a slightly smaller net repayment than the average of £1.8 billion made since March 2020.
Howard Archer, chief economic adviser to EY Item Club said: “The overall slowdown in consumer credit growth had originally been significantly affected by weaker private car sales, which reduced demand for car finance.
“February’s figures are within scope of the third national lockdown, which is limiting consumer activity. Retail sales volumes were down 3.7% year on year in February, while private new car sales declined 37.3% year on year in February.”
In a further sign of household caution, people continued to deposit significant amounts into savings and other accounts, with an additional £17.1 billion placed in February.
But the returns being earned were low. The Bank said deposit interest rates remained at historically low levels.
Meanwhile, mortgage borrowing strengthened in February, with people borrowing an additional £6.2 billion secured on their homes.
This was supported by the expected ending of the temporary stamp duty tax relief at the end of March, which has now been extended to end of June, the Bank said.
Its report added: “February saw the strongest net borrowing since March 2016 (£7.2 billion), when borrowing was also boosted by changes in stamp duty.”
Looking ahead to future mortgage borrowing, the Money and Credit report also showed the number of mortgages approved to home buyers totalled nearly 87,700 in February, edging down from 97,350 in January.
Nitesh Patel, strategic economist at Yorkshire Building Society, said: “The market has been on an upward trajectory, despite rising house prices and continued economic uncertainty, with buyers refusing to be deterred from the buying the biggest ticket item of them all.
“There is growing evidence that larger homes are currently the most desirable: since March 2020, sales of detached homes have grown from 22% to 28% of all transactions. Flats now account for a smaller share at 12%, down from 17% over the period.”
David Ross, managing director of property market analysts Hometrack, said: “We expect the following months to see an increased rise in mortgage approvals as we have witnessed a 6% increase in mortgage applications in March, compared to September 2020, which was our peak in volumes over the past 12 months.
“Our data also shows us that mortgage applications are shifting towards larger, more expensive properties, and away from the typical first-time buyer, entry level properties, in line with a peak of net borrowing being the strongest since March 2016.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “February, not usually known for being that busy a month for the housing market, continued to see strong net mortgage borrowing of £6.2 billion, the highest in five years.
“Buyers were spurred on by the expected end to the stamp duty holiday in March but now that this has been extended, the market is set to continue to be busy as purchasers try to take advantage of the saving.”
He said a new Government-backed 5% deposit mortgage scheme set to launch this spring will bring more choice to first-time buyers, adding: “With several lenders including Skipton, Yorkshire Building Society and TSB already launching 95% (loan-to-value) deals, and others expected to follow suit in coming weeks, rates could also potentially fall, which is further good news for borrowers.”
Jeremy Leaf, a north London estate agent and a former residential chairman of the Royal Institution of Chartered Surveyors (Rics) said: “Since the (stamp duty) deadline was extended and vaccination rollout has taken off, the market has gained new impetus.”