Consumer borrowing falls in January

Latest Bank of England (BOE) data shows that borrowing declined in January, with borrowing using credit cards, personal loans and overdrafts totalling around £600m compared to £800m in December.

This was split between £100m of additional borrowing on credit cards, and £500m in borrowing in other forms of consumer credit (such as car dealership finance and personal loans).

Total outstanding borrowing is £58.4 billion on credit cards and £139.6 billion on other forms of consumer credit.

The annual growth of consumer credit borrowing accelerated to 3.2% in January, up from 1.5% in December. This marked the highest annual growth rate since March 2020, when the increase was 3.7%.

The data shows that the effective rate on new personal loans fell by six basis points, to 6.21%, while the effective interest rate paid on individuals’ new time deposits with banks and building societies rose by 31 basis points to 0.67%. 

Mortgage approvals for house purchases rose in January with 73,922 mortgage approvals recorded. This is the highest total since July 2021, when 75,900 mortgages were approved, and exceeds the 12-month pre-pandemic average of 66,700 logged in the period to February 2020. Whilst remortgage approvals rose too, from 45,100 to 46,200 – and from a value of £9.1bn to £9.4bn. This means that net borrowing of mortgage debt by individuals amounted to £5.9 billion in January. 

Meanwhile, Large businesses’ borrowing from banks rose to £1.7bn in January, while SMEs repaid £800m.

Commenting on the figures, Paul Heywood, Chief Data & Analytics Officer at Equifax said “With a third interest rate rise in as many months expected at the end of this month, and a continued cost of living crisis putting the squeeze on consumers, it was only a matter of time until the ripples were seen in the credit industry. The data from the BoE echoes what we’ve observed here at Equifax, that consumers are beginning to tighten their belts, paying down less debt, and a steadily increasing number are even falling behind on their loan repayments, especially in the consumer credit space.”

“Over in the mortgage market, approval rates are rising, but they are still fairly tepid historically speaking, with many consumers opting to wait and see how the mortgage market reacts to a rising rates. A proportion this activity will be driven by those who already own a home choosing to lock in a fixed rate before they rise much higher. As credit providers tighten their lending criteria, they are naturally becoming more mindful of the creditworthiness of customers, making this a good time to iron out any possible kinks in a credit report.”

David Hendry, Chief Marketing Officer at Freedom Finance said “The latest Bank of England figures show that individuals borrowed an extra £0.6 billion in consumer credit in January. This is lower than the average of £1 billion in the pre-pandemic 12 months to February 2020 and shows that fears around the impact of the Omicron variant and inflation still weighed on consumers’ borrowing habits at the start of the year.”

“Households deposited an extra £7.7 billion with banks and building societies and while flows are clearly trending down towards pre-pandemic levels as spending habits normalise, this represents a noticeable uptick from the past few months.”

“It will be important to watch how these figures develop over the coming year as inflation starts to hit British households while the energy price cap increases in April at the same time as planned tax rises come into force. The slight uptick in deposits may indicate that households are starting to create a cash buffer in advance of trickier times ahead for their personal finances.”

“Meanwhile, rates on new personal loans declined by 6 basis points, which will be another dataset to watch carefully as rising rates could signal that banks and lenders are starting to get twitchy about people’s ability to keep up with their borrowing. Consumers are more likely to fall behind on their unsecured personal loans rather than their mortgage and so such an uptick in rates could be the canary in the gold mine if lenders take an increasingly pessimistic economic outlook.”

“Digital marketplaces that can compare products from a wide variety of trusted, reputable lenders remain a crucial tool for borrowers to hunt for the most competitive rates. Lenders with the appetite to attract new customers need to ensure they are making the most of all digital marketing channels.”

Jonathan Sealey, CEO at specialist lender Hope Capital, said “The latest statistics revealed by the Bank of England are somewhat promising. While January mortgage approvals for house purchases were down on last year, they were 12% higher than pre-pandemic average.”

“Once again, these findings are not surprising considering the figures recorded last year would have been fuelled by the looming stamp duty holiday. The key thing to take away from these stats is that activity is evidently increasing. However, the future of the housing market is still blurred, with many people wondering what direction it will take over the next few months.”

“The increase in house prices, as well as living costs will understandably affect certain types of borrowers, e.g. first time buyers. Nevertheless, demand is still strong and as a result, there will be opportunities for brokers and lenders alike. The importance of paying close attention to the market, however, has never been so important.”

Richard Pike, Phoebus Software Sales and Marketing Director, said “These figures from the Bank of England, as encouraging as they might have been a week ago, cannot be said to be indicative of future activity. With everything that is going on, both at home and abroad, there are already signs that consumer confidence is waning. We only have to look at the queues at the petrol pumps to see that some people are already beginning to show signs of panic.”

“In the next few months, we could see more volatility in the mortgage market, not just with consumer appetite, but also with funding as the banks strive to manage the quickly changing financial situation. The events in Ukraine put everything at home into perspective, but the impact of the Russian invasion will certainly be felt across the world as sanctions take a grip, especially when it comes to oil and gas prices. We are all going to feel it in our pockets.”

Sarah Coles, Senior Personal Finance Analyst, Hargreaves Lansdown said “Homebuyers defied December’s Bank of England rate rise, borrowing almost £6 billion more in mortgages in January, and getting tens of thousands of deals approved for the coming months. But this isn’t a sign that they’re completely unphased by rate rises, it’s one of a number of reactions that show growing concern.”

“There’s a good chance that, for some buyers, all the speculation in the latter half of 2021 meant that December’s rate rise was factored in months earlier, and was small enough not to make much difference to their plans. However, for others, this presented a window of opportunity. Mortgage rates had risen slightly, but didn’t budge during the month. Buyers knew they had the chance to lock in a cheap fixed rate deal for a home move, and protect themselves from rises being widely predicted for February and beyond.”

“When February’s rate rises feed through into the figures we may well see approvals slow down, and with more rises expected in the spring, it could put the brakes on the housing market. This could be the brief window of calm before the heavens open on the property market.”

“Elsewhere in the figures, we saw growing signs of worry about the cost of living crisis. Those people whose finances are on a knife edge risk falling into debt. There’s been a slow creeping growth of borrowing on credit cards – up £0.1 billion in a year. No doubt some of it is people carrying their festive debts into the new year, but there’s a risk that some of it is people dipping into the red when price rises mean they can’t afford to make ends meet.”