Credit, Collections & Insolvency News
UK Finance has released its latest Household Finance Review which showed a decline in consumer confidence and a drop in mortgage applications in Quarter 4 (Q4) 2022.
Following the September 2022 mini budget consumer confidence fell below already-low levels. Despite the concerns of households about their finances, overall card spending remained steady in Q4. However, the data shows that there were clear changes in the way consumers were spending their money.
Spending on travel, particularly air travel, which had seen significant growth in the early months of 2022, fell away sharply in the final quarter of 2022. Other areas saw a marked increase in spending such as second-hand shops, handcraft stores and DIY stores, which all saw a sharp and sustained rise throughout 2022. While this can be seen as a symptom of the rising cost of living, these changes in consumer spending patterns also reflect a societal shift towards recycling and upcycling.
Meanwhile, personal loan borrowing – which is often used to fund more expensive purchases – saw a decline of nine per cent at the end of last year compared to the same quarter in 2021. Household savings remained essentially flat in Q4. However, following nearly a decade of decline in longer-term savings, there was growth at the end of last year as increasing savings rates boosted demand.
Overall, gross lending in the mortgage market grew by 1.9 per cent last year. House purchase activity was weaker throughout 2022 compared with a bumper year in 2021, but this was offset by rising house prices and a strong refinancing market.
Following the September mini budget the flow of mortgage applications submitted to lenders fell sharply to levels considerably below those seen in the final quarter of 2021.
At the same time, affordability constraints meant that a greater number of households are borrowing over a longer mortgage term, with the average term for a first-time buyer loans now at around 31 years.
Interest rate rises and cost of living pressures contributed to a modest rise in the number of people in arrears in Q4. The range and extent of mortgage forbearance available from lenders has helped keep arrears down, and we would encourage anyone struggling with their payments to speak to their lender as early as possible to talk through the options available to help.
Meanwhile, there were a little under 4,000 possessions over the whole of 2022. Whilst slightly up from the previous two years due to the industry’s voluntary pause on possessions, this is still lower than any other year since 1980 when the overall stock of mortgages was a little over half the size it is today.
Eric Leenders, Managing Director of Personal Finance at UK Finance, said “Despite the fall in applications towards the end of 2022 the mortgage market remains steady. Looking ahead, we expect a softer market compared with the past two years as cost pressures weigh on households, although refinancing levels will be robust due to the 1.8 million fixed rate deals scheduled to end this year.”
“At the same time, consumers are changing the way they spend their money, moving away from luxury spending to second-hand shopping. As cost of living pressures persist throughout this year, many people may need to draw upon their savings to help with their bills. Lenders are looking to help anyone who is worried about their mortgage, loan or credit card payments. Those worried about their finances should speak to their lender as soon as possible to discuss the options available.”
Adam Oldfield, Chief Revenue Officer, said “Today’s figures from UK Finance highlight the trend that started at the end of last year and that set the tone for the first two months of 2023. Nevertheless, we are starting to hear more positive news on the ground that the market is seeing some green shoots, which is what we have come to expect as we head into spring. With Halifax reporting that house prices stabilised in February, and that first-time buyer mortgage applications increased in January (according to first direct), the outlook is better than we might have imagined.”
“That being said, there are still worries regarding an increase in arrears in the coming months. There is an air of inevitability in this as interest rates continue to rise and borrowers come off very low fixed rate deals. Lenders will need to be on the front foot to ensure that not only do they have the right systems in place, but that they have the staff to ensure those exposed to this risk are given the help they need. We have been used to cheap money for such a long time, which was most certainly unsustainable, and for many the current rates of interest are a shock to the system. What everyone needs to understand now is that this is very likely now the ‘new normal’ and, as the Bank of England has already warned, rates will not being going down. Whether they’ve reached their height is the next question.”
Card Spending trends:
