Mortgage borrowing increased to £9.5bn in September

Latest Bank of England data has shown that individuals borrowed £9.5 billion of mortgage debt on net in September, the highest since June 2021.

This was a rise from £4.4bn in August, and the highest figure since June 2021, when net borrowing reached a record of £17.1bn.

Consumers borrowed an additional £0.2 billion in consumer credit, on net. The effective rate on new personal loans increased to 6.02% in September, and is the highest since March 2020 but remains below the January 2020 level.

Meanwhile mortgage approvals for house purchase fell further to 72,600 in September from 74,200 in August, but remains above pre-February 2020 levels.

Separately StepChange Debt Charity has reported that of the 13,000 new clients who took advice from the charity in September, a rising proportion were claiming Universal Credit, experiencing arrears on their energy bills, or in a “negative budget” situation. The charity’s ‘gas and electricity arrears information page’ saw a 388% increase monthly increase in page visits between August and September.

These new trends emerged before some of the high-profile cost pressures that have subsequently emerged (such as the increase in energy bills, and the changes to Universal Credit).

For the first time since April 2020, Covid fell out of the top five reasons cited by new clients for their debt. This suggests that debt arising from the pandemic is evolving from being a driver of new problem debt into a legacy issue affecting people with existing problem debt. Its ongoing influence should not be under-estimated, however. The £360 million of rent debt accumulated during the pandemic, for example, continues to exert an alarming risk of rising evictions over the coming months.

Credit cards, personal loans, overdrafts, council tax arrears, and catalogue debts were the most common debt types held by those who turned to StepChange for help in September, each held by over a third of new clients. 56% of new clients in September were in employment, with 22% unable to work for health or caring reasons, or of retirement age.

Despite some welcome measures in last week’s Budget, StepChange anticipates that the pressures on the lowest income households experiencing problem debt will remain acute heading into the winter.

Especially given the inflation arising from the rising cost of essential goods such as food and energy, the charity is worried that many poorer households in debt will not be able to make ends meet over the coming months, and will turn to borrowing more or falling behind on bills, in an effort to meet their essential needs.

Commenting on the September data, StepChange Head of Policy, Research and Public Affairs Peter Tutton said “Clients who turned to us for help in September were already exhibiting some alarming warning bells about the cost pressures now emerging, such as energy prices, that risk forcing more lower income households into debt over the coming months. The Government and regulators need to be attuned to these risks, and ready to take further steps to help alleviate pressure if we are to avoid a rising debt crisis, especially among lower income households.”

“The latest Bank of England borrowing data out today shows a net increase in consumer credit, driven by rising borrowing on credit cards. While this isn’t necessarily reflective of a cost of living squeeze, we do know that people often turn to credit cards to make ends meet – they are the most common form of debt among StepChange clients.”

Paul Heywood, Chief Data & Analytics Officer at Equifax UK said “The property market has been a hive of activity since the stamp duty holiday was introduced last year, and September was the last hurrah for house movers wanting to take advantage of the tax break before the Chancellor’s new tax regime kicks in.”

“Total mortgage lending jumped by £9.8bn to £30.7bn in the month, driven predominantly by this stamp duty rush, but also by the highest level of remortgaging since March 2020. The prospect of 4% inflation is putting pressure on the Bank of England to raise interest rates, and homeowners are clearly keen to lock in low rates, and pay down debt, while they can.”

“In the consumer credit market, credit card borrowing of £0.6bn in September is not just the highest monthly net borrowing since last summer, but roughly back to the level we were seeing before the pandemic. On the surface this points to a return to ‘normal’ consumer spending behaviours, but at a time when many continue to feel the longer-term economic consequences of COVID, it’s vital that the credit industry keeps a close eye on affordability over the coming months, especially at a time when rising costs are putting pressure on families heading into winter.”

Whilst Richard Pike, Phoebus Software sales and marketing director, said “In a week when the Chancellor chose to almost sideline housing in his budget speech it is encouraging to see that mortgage approval numbers in September were still above the pre-pandemic level.  Not that £24bn is an insignificant amount, it just didn’t warrant much emphasis in the greater scheme of things.  However, for those of us in the industry we have to take the positives while we can get them and, for now, our housing market continues to defy predictions that it would fall off a cliff after the SDLT holiday.”

“It is interesting to see that consumer borrowing increased whilst savings, which had increased during the pandemic, fell slightly.  As people return to ‘normal’ practices the difference between what people spend and what they save is likely to increase.  Not surprising when you consider how long we were without those liberties.  Rising prices, especially on energy and fuel, will surely make that gap even wider over the coming months.  Then lenders will have to take a long hard look at affordability calculators and the risk that rising household bills has on overall affordability.”

Bank of England figures also showed that large businesses borrowed £1.0 billion in loans from banks in September, whilst small and medium sized businesses repaid £1.4 billion.