Credit, Collections & Insolvency News
Consumers are starting to run down the savings built up during the pandemic in order to sustain household spending patterns threatened according to latest Bank of England (BOE) figures.
The Bank said savings stood at £3.2bn in December, less than a third of the £10.6 billion monthly average for the previous 12 months. Consumer credit increased by £800m – of which £400m was on credit cards, meaning that there is £58.7 billion of debt on credit cards.
Credit card borrowing is up 2% in a year, while other loans (including car finance) are up 1.1%.
Borrowing on credit cards, personal loans and overdrafts – increased by 1.4% year-on-year in December, marking an increase on the 0.8% climb recorded in November.
Net borrowing for mortgages dropped slightly in December, the report showed that homebuyers saw 71,000 mortgage approvals in December, with this above the 12-month average up to February 2020 of 66,700. The number of approvals for remortgaging with a different lender rose slightly, to 44,900 in December. This remains low compared with the 12-month average to February 2020 of 49,500 but is the highest since the 52,500 logged that month.
At the end of last year, net borrowing came to £3.6bn, which compares to £3.8bn in November. The BoE points out that this is below the pre-pandemic average of £4.2bn in the 12 months to February 2020. Gross lending fell too, from £22.4bn in November to £21.7bn in December.
Approvals for house purchase climbed, however – going from 66,700 in November to 71,000 in December. In terms of value, over the same time frame this went from £15bn to £16bn.
Commenting on the figures, Paul Heywood, Chief Data & Analytics Officer at Equifax said “Consumers were dealt a triple blow to their finances in December, as inflation, the festive period and a widely debated base rate rise exhausted purse strings. Any consumer confidence that grew in November was quickly diminished, as demand for credit dropped and net borrowing of mortgage debt fell in line with November figures.
“We already knew that 1.7 million households defaulted on or missed at least one rent, loan, mortgage, bill, or credit card payment in December 2021, so it comes as no surprise that households were unable to inject more money into their deposit accounts. Lenders must be mindful of these difficult circumstances and consider using Open Banking to spot the signs of financial difficulty in advance. Doing so will strengthen protection against overindebtedness and help consumers to make the most informed decisions when it comes to their spending.”
Richard Pike, Phoebus Software Sales and Marketing Director, said “Against many predictions the housing market continues apace, with these latest figures from the Bank of England showing that there is still plenty of appetite. The first interest rate rise in December is likely to have been a major contributing factor, spurring people on to beat the next inevitable rise.”
“With the next expected interest rate rise just days away, and as our freedoms are returned, it is not unreasonable to expect this level of activity to continue. The main consideration for many though is our rampant inflation rate and the rising cost of living, which will certainly have an effect on affordability for some. This could be especially hard for first-time buyers as house prices show little sign of coming down”
Sarah Coles, Senior Personal Finance Analyst, Hargreaves Lansdown said “Lenders were wrong-footed by the Bank of England’s 11th hour swithering in November, so borrowing rates dropped back. Meanwhile, for savers, December was yet another non-event. Rates on loans and overdrafts had started to climb in November, because speculation about the Bank of England raising rates made life more expensive for the banks, and they were quick to pass the cost onto borrowers. This dropped back in early December, when rate speculation for the month turned out to be a red herring.”
“However, we can expect this to be the low point, because the eventual rise from 0.1% to 0.25% in the middle of December will feed into higher January rates. This will come at the worst possible time, because borrowing rose again in December. Part of this was because we shrugged off fears of an Omicron surge to make up for the Christmas we missed a year earlier. However, part of it was down to hikes in the cost of living, forcing more of us to turn to borrowing to close the gap. Motor finance also played a part, as the runaway cost of new and used cars has meant we’re taking larger loans to get on the road.”
“The extra spending put the brakes on saving too, with new deposits well below what we’ve been putting away during the pandemic: they’re even below pre-pandemic levels. Those who did manage to save were rewarded for their efforts with more disappointing rates. Vanishingly few savings providers passed December’s rate rise on in full, and those who passed on anything at all took their time about it. Banks have been surviving on very thin profit margins ever since rates fell to record lows, so they saw this as the chance to boost their profits. Unfortunately, this came at the expense of savers, who saw savings rates budge very little during the month.”