Latest Bank of England (BoE) data has shown that consumer borrowing dropped sharply in December, suggesting the UK economy probably slipped into recession at the end of last year.
Consumer borrowing fell from £2.1bn to £1.2bn, with credit card borrowing experiencing a steep decline. Consumers repaid, on net, £800 million of mortgage debt in December compared to net zero in November.
Mortgage approvals for house purchases rose from 49,300 in November to 50,500 in December. Net approvals for remortgaging increased from 25,700 in November to 30,800 in December.
Remortgaging approvals also rose from 25,700 to 30,800 during the same period. The rise in approvals is attributed to lower borrowing costs and an ongoing mortgage price war.
Meanwhile, businesses borrowed £700m from banks, compared to £1.4bn of repayments the previous month.
StepChange is warning that any apparent green shoots of recovery belie the fact that millions of people are still struggling to keep up and are at risk of falling into problem debt. New polling issued by the charity today reveals that 40% of people, around 22m people, are struggling to keep up with bills and credit commitments.
Richard Lane, Chief Client Officer at StepChange Debt Charity, said “While it’s encouraging to see consumer borrowing fall – particularly in December when Christmas spending is at its peak – the fact remains there are still millions of people struggling to meet the most essential of financial commitments and they are turning to borrowing as a result. Our research has found that one in eight people has borrowed to keep up with essential payments in the past twelve months, and with everyday costs like energy bills and groceries still soaring, we can expect to see more and more people turn to borrowing to make ends meet.
“The Chancellor has an opportunity in the Spring Budget on the 6th March to extend targeted support for low income households whose financial resilience has been eroded by two years of sky high prices across the board. In an election year, tackling such widespread problem debt and improving households’ financial security should be at the top of the current and future government’s agenda.”
Clare Hollis, Director of core credit at TransUnion in the UK said “The latest Money and Credit statistics from the Bank of England show a positive trend emerging as interest rates on new mortgages dropped by 6 basis points to 5.28%, the first decrease since November 2021. Additionally, in December, individuals made a repayment of £0.8 billion on mortgage debt, compared to November’s neutral stance.
“Despite the uncertain economic climate, UK mortgage approvals have climbed to 50,500, providing optimism to the housing market. This uptick suggests potential pent-up demand which could be spurred on by future rate cuts.
“While the potential for a larger growth in mortgage applications on the horizon is positive news, the economic impact from recent years should still be taken into consideration. Lenders should continue to assess the most up to date information possible to protect consumers and ensure responsible borrowing. Remaining vigilant and adapting to new trends is key to navigating these dynamic economic shifts.”
Sarah Coles, Head of Personal Finance at Hargreaves Lansdown said “There was some positive news on mortgage approvals, but it’s hardly a borrowing bonanza. We can celebrate approvals pushing through 50,000, and there are some signs that January has seen another bounce, but we’re still a long way from a healthy market.
“Approvals have to be seen in the context of the fact that excluding the start of the pandemic, we had been used to approvals of over 60,000 a month for the best part of a decade, and we’re still well short of this. The amount outstanding on mortgages at the moment is roughly the same as a year ago. It’s the first time this hasn’t grown annually since the Bank started measuring this in 1994.
“The better news is that mortgage rates have continued to drop. The average 2-year mortgage is now just a fraction over 5.5%, according to Moneyfacts, down from just over 6% at the start of December and almost 7% in August. Early indications are that this has seen some buyers and sellers return to the market, and sales have risen.
“We can’t get carried away. It’s still a buyers’ market, and Zoopla says sellers are still having to discount asking prices significantly in order to secure a sale. Looking further ahead, the fact we’re teetering on the edge of recession means there’s every chance prices will continue to fall throughout the year. However, for anyone who has gone months without a viewing – let alone an offer – a bit more activity brings some hope.
“Meanwhile, anyone remortgaging from a rate below 2% to over 5% still has a mountain to climb. When you combine higher mortgage payments with other rising prices, by the end of this year, the HL Savings & Resilience Barometer shows that one in four people with mortgages will be at risk of running into mortgage difficulties, because their repayments make up more than a quarter of their disposable income.”