Consumer credit grows 7.2%

Latest Bank of England data shows that the annual growth rate for consumer credit, which includes borrowing using credit cards, personal loans, overdrafts and car finance, increased by 7.2% in September from 7.1% in August, the highest rate since March 2019.

The annual growth rate of credit card borrowing was 12.1 percent with outstanding balances for consumer credit now standing at £205.8 billion.

Consumers borrowed an additional £700 million consumer credit, on net, below the additional £1.2 billion borrowed in August driven by lower credit card borrowing of £100 million.

Net unsecured consumer credit rose by £745 million, the smallest monthly increase since December 2021.

Net borrowing of mortgage debt by individuals remained at £6.1 billion in September. Mortgage approvals for house purchases fell to 66,800 in September from 74,400 in August, This has been attributed in part to the impact of rising interest rates and a decline in the number of mortgage products following the Government’s mini-Budget.

Commenting on the figures Joanna Elson CBE, Chief Executive of the Money Advice Trust said “Households are facing a relentless squeeze on their budgets and today’s figures, which show borrowing levels continue to remain high, reflect the ongoing difficulties many are facing.”

“With incomes for millions of people unable to keep pace with rising costs, increasingly, people are having to turn to credit to cover essential outgoings.  And for people on the lowest incomes, the challenges only get harder.  It is now more important than ever that the government commits to raising benefits by inflation and not earnings – and takes a serious look at Universal Credit, to ensure it provides a real safety net for people in difficulty.”

Paul Heywood, Chief Data & Analytics Officer at Equifax said “The Government’s fiscal yo-yoing may have steadied gilt yields and buoyed the pound, but big financial headwinds of rising inflation, mortgage rates and energy bills are continuing to bite at people’s finances. Add looming austerity measures into the fray, and the picture for household purse strings is far from rosy.”

“Our data shows that demand for payday loans and Buy-Now-Pay-Later (BNPL) services have rocketed this year, as people struggle to meet the rising cost of living. These borrowing trends have disproportionately affected lower income households, as lockdown savings dry up, raising concerns for the long-term financial wellbeing of millions of households across the UK.”

“The increase in demand for credit from consumers must be met by an abundance of caution from the credit sector. The sector has a duty of care in these trying times, and lenders must be confident that customers meet affordability criteria and are not pushed into unrepayable debts. But going too far the other way, and lending only to prime customers, can equally cause problems for the hardest up.”

“Looking ahead to next week, all-eyes will be on the Bank of England and its rate decision – which it must now make in the absence of a Halloween Budget. A move by the Government that boosted the markets, but which also kicked the can of the UK finance blackhole down the road again.”

Emma Steeley, CEO at Freedom Finance said “Credit card spending collapsed in September after several months of strong growth, reflecting plummeting consumer confidence. With average quoted household rates on credit cards reaching their highest level since the 1990s, this borrowing has become expensive – particularly for households that revolve a balance.”

“Demand for other types of lending, predominantly personal loans and car finance, has maintained the levels we have seen through much of the year. However, it will become increasingly important that consumers looking to consolidate expensive debt shop around as they reach the end of shortening interest-free periods or face higher interest repayments on credit card debt built up over the year.”

“They should be shopping around and taking advantage of the latest technologies so they are only offered credit cards they are eligible for. This will help borrowers navigate the market without fear of being rejected and damaging their credit score while finding tailored products that will support their finances in this difficult economic period.”