Credit Card debt continues to grow

UK Finance has announced its latest household finance update for May 2018. The highlights from the report include:

• Credit card spending was 2.3 per cent higher in May than a year earlier, with outstanding levels of card borrowing having grown by 5.7 per cent over the year. The total of 193 million credit card purchases in May was above the previous 12 month average of 181 million, reflecting increased retail sales. Outstanding overdraft borrowing was 3.9 per cent lower compared to the same time last year.
• Estimated gross mortgage lending for the total market in May was £22.2bn, 8.8 per cent higher than the same month a year earlier.
• Mortgage approvals by the main high street banks in May have also risen, increasing by 3 per cent compared to the same month a year earlier. As in April, increased approval numbers were driven by remortgaging, some 18 per cent more than a year earlier. In contrast, approvals for house purchase were 3.8 per cent lower than the same month a year earlier.
• Personal deposits grew by 1.6 per cent in the last 12 months, although this was a lower annual rate than seen historically. Deposits held in instant access accounts were 4.4 per cent higher than a year earlier.

Commenting on the data, Eric Leenders, Managing Director, Personal Finance at UK Finance said “May’s increase in mortgage approvals was driven by strong growth in remortgaging, as a large number of fixed-term mortgages came to an end and homeowners took advantage of a competitive market to shop around for attractive deals. Increased efforts by lenders to contact their customers before their current mortgage deal expires have also contributed to this rise. There was modest growth in card spending, reflecting a boost to retail sales amid the good weather over the recent bank holidays and the Royal Wedding celebrations.”

“However, the overall economic picture remains mixed, as household incomes continue to be squeezed. This may explain the growth of deposits held in instant access accounts, with consumers increasingly choosing to keep their money close to hand.”

Commenting on the figures Jonathan Sealey, CEO at Hope Capital, said “The figures this morning show a pretty steady market, no real highs or lows.  However, it is interesting to note that the percentage of mortgage lending by high street banks is at exactly the same level it was a year ago.  Lending outside of the high street banks is 39% of the total market, which highlights the diversity of lending.  More challenger banks and specialist lenders are entering the market offering alternative solutions for people the major banks don’t want to touch because they do not fit mainstream criteria.  More people have specialist borrowing needs either because they need short term lending, lending for development or even are self-employed or on a zero hours contract.  All of this means borrowers are increasingly likely to need to look away from the high street to get the funding they need.”

Mark Pilling, Managing Director at Spicerhaart Corporate Sales said “UK Finance figures out today show that credit card spending was 2.3 per cent higher than a year earlier, with outstanding levels of card borrowing having grown by 5.7 per cent over the year.   Credit card purchases in May were 193 million – this is well above the previous 12 month average of 181 million.

“While this could just be a good sign that retail sales are starting to pick up, perhaps as a result of the summer weather and the Royal Wedding, we all know the retail sector is currently struggling, so it could be an indicator of wider issues, that perhaps people are being forced to put more of their day to day purchases on credit cards. You can’t read an awful lot from one month’s data, but this is quite a significant rise and it will be interesting to see if this trend continues. If credit card debt does continue to rise, we need to be prepared for the knock on affect this may have on other areas, such as people’s ability to keep up with rent and mortgage repayments.”