Credit, Collections & Insolvency News
Consumers borrowed an additional £800 million in consumer credit in October according to the Bank of England’s latest money and credit figures.
Credit increased £200 million when compared to the £600 million borrowed in September but was below the previous six-month average of £1.3 billion.
The figures show that new borrowing of mortgage debt by individuals decreased from £5.9bn to below £4bn in October, the lowest reading since November 2021. The average rate on new mortgage loans increased by 25 basis points in October, hitting 3.09%.
Meanwhile the data shows that mortgage approvals fell by 10% in October, from 66,000 in September to just under 59,000. This was the lowest number of mortgages approved by UK lenders since June 2020. The total was also down on the 69,489 recorded in October 2021. The decline in approvals comes amid a slip in demand that has been driven by higher interest rates, the cost-of-living crisis, soaring inflation, and ongoing economic uncertainty. The market was also hit by September’s controversial mini-Budget which saw some banks pull mortgage deals and others hike the rates on deals.
Responding to this, Freedom Finance Chief Executive Emma Steeley said “This looks to be a combination both of households feeling the pinch from the October energy price cap and a sharp increase in effective rates on personal loans and credit cards. As we enter the Christmas period, all eyes will be on how consumers are managing their finances during the festive celebrations. It will become increasingly important that consumers with expensive debt look to consolidate to cheaper options as they reach the end of shortening interest-free periods or face higher interest repayments on credit card debt built up over the year.”
“Given the rising cost of borrowing, it is vital that everybody accessing the consumer credit sector is exercising best practice. Shopping around and taking advantage of the latest technologies means would-be borrowers can find the best rates available to them without fear of being rejected and damaging their credit score.”
As for the annual growth rate for all consumer credit, this decreased slightly between September and October – dropping from 7.1% to seven percent. Additionally, the annual growth rate of credit card borrowing decreased from 12.1% to 11.5%, while the annual growth rate of other consumer credit remained at 5.1%.
Paul Heywood, Chief Data & Analytics Officer at Equifax said “A cocktail of tightening monetary and fiscal policy, mixed with ongoing inflationary pressures, has put the UK economy on ice, as consumers shy away from borrowing to support their buying behaviours. While this cooling of economic activity will be welcome news for the Bank of England, which has been pushing up the cost of borrowing to bring down inflation, the resulting recession will soon lead to an unwelcome hangover for personal finances, and something the central bank will feel compelled to address.”
“Right now, in this limbo period, where the cost of borrowing remains at decade-long highs, those on lower incomes are feeling the pinch most as they struggle to cover the cost of essentials such as heating and housing. Our data has found that use of Buy-Now-Pay-Later and so-called ‘Pay Day’ loans by those on lower incomes has been rising in recent months, and as winter bites, with all the financial pressures of Christmas, we would expect this trend to continue.”
“The credit sector proved during the pandemic that it can be flexible and empathetic to the needs of people that unexpectedly found themselves in vulnerable financial situations. Now once again, I hope our industry can act as one to protect those that need it from the challenges to come.”