The latest borrowing figures published by the British Bankers Association (BBA) show that consumers are still trying to pay down debt than take out new borrowings.
Mortgage approvals rose slightly in August for both new house purchases and remortgages. This was the fourth consecutive monthly rise but they were 13 per cent lower than in August 2011.
Activity levels remain muted and around half their historical levels from 2006 and 2007, before the credit crunch.
Howard Archer, Chief UK & European Economist at IHS Global Insight said: “The BBA reported that mortgage approvals rose to a four-month high of 30,533 in August from 28,750 in July. However, they were still down 13.3% year-on-year from 35,211 in August 2011.
“Indeed, mortgage approvals remain extremely low compared to past norms. At 30.533 in August, mortgage approvals were only 55.1% of the average monthly level of 55,408 seen since 1997.”
It is hoped that the Bank of England’s Funding For Lending Scheme (FLS) will lead to more competitive mortgage deals for first-time buyers and homeowners with small deposits to help spark some life into the moribund mortgage market.
Mortgage lenders have maintained tight lending criteria and some have raised standard variable rates in recent months.
Repayments on personal loans and overdrafts were £350 million higher than new borrowing and outstanding loan amounts are roughly half the level they were at before the credit crunch kicked in five years ago.
The BBA report also shows that savings levels have risen, particularly through ISAs. The BBA says deposits have increased by 5.8 per cent in the 12 months to August. Savers are taking advantage of their tax-free status to try and get real returns in a market dominated by low interest rates for savers because base rate remains at a record low of 0.50 per cent.
BBA statistics director David Dooks said: "People are acting conservatively in this weak economic environment, maintaining debt repayments and building up deposits."
Credit card customers also paid back more than they borrowed in August, though overall debt rose because of interest on existing borrowings.