Latest Bank of England (BoE) data has shown that borrowing of consumer credit by individuals amounted to £1.6 billion in August, up from £1.3 billion in the previous month.
Consumer credit growth rose to 7.6 percent in August 2023 with outstanding balances for consumer credit now standing at £217 billion.
Net borrowing of mortgage debt by individuals increased for the fourth consecutive month to £1.2 billion in August, up from £0.2 billion in July. Net mortgage approvals for house purchases fell from 49,500 in July to 45,400 in August, the lowest level in six months whilst net approvals for remortgaging dropped from 39,300 to 25,000 during the same period, the lowest since July 2012.
Whilst separate findings from National Debtline show that 2 in 5 (41 percent) of people who contact its advisers have incomes that are too low to cover their essential costs.
Commenting on the figures, David Cheadle, acting Chief Executive of the Money Advice Trust said “Consumer credit borrowing is rising at a time when high costs continue to hit household budgets hard. At National Debtline we are hearing from people whose incomes are not able to keep up with the cost of essentials, with many turning to credit to make up the shortfall.”
“The risk is that households using credit to plug gaps in their finances will face further difficulty down the line as debts mount. It’s vital that all creditors ensure customers experiencing difficulty are supported, including offering forbearance and affordable repayment options and signposting to debt advice.”
Richard Lane, Director of External Affairs at StepChange Debt Charity, said “The continued rise in mortgage borrowing and the slump in mortgage approvals revealed by today’s statistics is no surprise given the pressures on homeowners from stubbornly high interest rates and the wider economic climate. Our latest polling reveals that two thirds of mortgage holders (65%) say the rise in interest rates has had a negative effect on their overall financial situation.”
“The pause in rate rises last week will bring some relief, but borrowers are still facing significantly higher costs than they would have anticipated 18 months ago. Private renters are also facing increasingly unaffordable housing costs, with many having seen their rent rise due to their landlords passing on higher borrowing costs.”
“With a larger proportion of people’s incomes taken up by housing costs, there’s a risk of people falling behind with household bills or credit repayments as they try to maintain rent or mortgage payments to avoid falling into arrears.”
Paul Heywood, Chief Data & Analytics Officer at Equifax said “Today’s Bank of England data shows that consumer credit borrowing has rebounded, rising to £1.6 billion in August, after a significant slump in July. Despite this rebound, mortgage approvals have remained sluggish, largely in response to high mortgage rates which have begun to slow the housing market.”
“This increase in consumer credit borrowing won’t be quite what the Bank was hoping to achieve as it wrestles with inflation. However, the slowing housing market and latest inflation figures do suggest that the decision to maintain the base rate at 5.25% is having the desired impact, and the economy is moving in the right direction.”
“Ultimately, we’ve seen the credit sector show that it can continue to be resilient to the changes caused by the Bank’s monetary policy, and the recent respite from consecutive base rate rises will do much to create an environment within the sector to lend more confidently.”
Simon Webb, managing Director of capital markets and finance at LiveMore, said “It is good to see that both gross and net mortgage lending were up in August but the fall in approvals for house purchases and remortgaging doesn’t bode well for future lending over the next two or three months.”
“Remortgaging approvals were down 36% to just 25,000 cases, the lowest figure in 13 years. I expect there were a lot more product transfers as interest rates are much higher now and borrowers don’t need to go through the whole affordability assessment as they do with a remortgage. It would be interesting to see the product transfer data as we know around half a million borrowers are due to remortgage by the end of this year.”
Sarah Coles, Head of Personal Finance, Hargreaves Lansdown said “It was a miserable month for mortgages, as rates hit a peak, and buyers bailed out of the market. Approvals were at a six-month low as the average rate on new mortgages rose 16 basis points, to 4.82% on the back of concerns that inflation wasn’t falling as fast as expected.”
“Things aren’t quite as dire as they were in the aftermath of the mini-Budget, but that’s an incredibly low bar. We’re seeing every sign that higher mortgage rates effectively killed demand during the month. The Nationwide figures out earlier today showed that this had a knock-on impact on house prices, which fell faster than at any time since the aftermath of the financial crisis.”
“The good news is that this was the peak for mortgage rates, and they have fallen in the months since. It remains to be seen whether demand has bounced back, or whether the fact that rates are still higher than the spring means any recovery in buyer demand is likely to remain lacklustre as the housing market staggers towards the end of the year.”