Consumer credit increases in June

1st August 2022

Latest Bank of England data has shown that people borrowed an extra £1.8 billion in June, up from £900 million in May showing that consumer credit growth rose 6.5 percent in June 2022. The annual growth rate of credit card borrowing was 12.5 percent with outstanding balances for consumer credit now standing at £203.9 billion.

The data shows that consumer credit growth accelerated at the fastest rate in three years last month. Households placed an extra £1 billion on their credit cards, with another £800 million on car dealership finance, personal loans and other consumer credit. The annual growth rate for all consumer credit increased to 6.5% in June, the highest rate since May 2019, while credit card borrowing surged 12.5%, while other forms of consumer credit was 4.1%. These were the highest rates since November 2005 (12.6%) and March 2020 (5.6%) respectively.

Net borrowing of mortgage debt by individuals decreased to £5.3 billion in June, down from £8 billion in May but remains above its 12-month pre-pandemic average up to February 2020 of £4.3 billion. Approvals for house purchases fell from 65,700 to 63,700 in June, while approvals for remortgages decreased from 47,200 to 44,000.

Commenting on the figures, Jane Tully, Director of External Affairs and Partnerships at the Money Advice Trust, said “Household finances are under more pressure than ever – today’s borrowing figures are a warning sign that, for some, the pressure is already beginning to tell. Whilst many households are so far able to absorb the impact of rising prices, others are facing impossible choices trying to meet everyday costs.  And with a further hike in energy prices around the corner, our concern is that more people will have to turn to credit to cover basic needs.”

“Government support so far has been welcome, but more support is needed for those on the lowest incomes, including significantly raising benefits.”

Paul Heywood, Chief Data & Analytics Officer at Equifax said “With much of the population still on fixed rates for their utility bills or mortgage payments, not everyone’s personal finances will feel the full brunt of rising headline inflation straight away, but even with that lag, most people are now experiencing the inflationary pinch in one way or another. Many have been forced to cut back on spending in ways we haven’t seen for years, cancelling subscriptions, swapping supermarkets, and diverting less of their income towards paying down debt, even in the face of rising interest rates.”

“As prices rise, and disposable income shrinks, consumers are having to find ways to top up the money flowing into their current accounts. Higher income households are increasingly dipping into their savings, reversing a trend seen during the pandemic, while those on lower incomes are turning to the credit industry to help them ride out the storm. Applications for credit are now back to pre-pandemic levels, and as the cost of living crisis continues to unfurl, this demand isn’t going anywhere. Lenders will need to find ways to service this demand responsibly and comprehensively, and should where possible be using data to fight the urge to retrench to the prime end of the market.”

John Phillips, National Operations Director at Just Mortgages said: “Although this may at first seem like a significant fall in net lending in June we should remember that there was a considerable spike in May and volumes are still well above the pre-pandemic average.”
“In an environment of high inflation, rising interest rates and a cost-of-living crisis the mortgage market is showing tremendous resilience. Despite fears of a cooling housing market, feedback from our brokers across the country is that mortgage demand remains high and, with relative low stock levels, house prices remain robust.”  
“We are expecting borrowers’ ability to satisfy lenders’ affordability rules to be affected by increases in household spending on fuel, food and energy but this has yet to materialise is any significant way and there is still an appetite from borrowers to secure a deal before further rate rises. However, completion times are being stretched and so we should expect a lag in housing transactions over the coming months.” 

Simon Webb, Managing Director of capital markets and finance at LiveMore Capital, said “The drop in mortgage borrowing by some £2.7 billion heralds the move towards the slower time for house purchases during the summer months.”

“However, combined with a drop by 2,000 of approvals for house purchases, these reductions may also reflect a growing nervousness in the market as interest rates rise. That said, at £5.3 billion, the level of borrowing still sits above the 12-month, pre-pandemic average up to February 2020 of £4.3 billion.”

Helen Morrissey, Senior Pensions and retirement analyst at Hargreaves Lansdown said “There are turbulent times ahead as mortgage activity drops, credit card lending surges and our savings plunge. The pandemic fuelled our savings habits and made us less likely to flash the plastic while our need for more space kept the property market running red hot. However, this is now starting to unravel as the cost-of-living crisis has laid waste to our savings and we are increasingly turning to credit to meet our day-to-day costs. It’s a sure-fire recipe for hard times ahead.”

“The so-called race for space fuelled the mortgage market during the pandemic but there are signs it is starting to cool. Net mortgage borrowing plunged from £8bn in May to 5.3bn in June. This is still well above the pre-pandemic 12-month average but a clear sign of the direction the market is headed.”

“Added to this, approvals for house purchases fell below the pre-pandemic 12-month average as the cost of living and increasing interest rates make people think twice about making a bid for a new home. It adds to the growing body of data pointing towards a slowdown in the coming months as homes that were once snapped up take longer to sell and sellers become more likely to tweak asking prices.”

“The amount we are borrowing continues to rise as surging inflation stokes our costs and erodes our pandemic savings. Of the extra £1.8bn in credit we took out in June around £1bn of this was on credit cards with the remainder on other finances such as personal loans and car finance. The concern is that much of this is being used to help people meet their day-to-day costs leaving them at risk of running up debt they may struggle to pay back. Rising interest rates will add an extra burden that is only likely to increase with the prospect of more interest rate hikes in the coming months.”

Separately Small and medium sized businesses repaid £0.4 billion of bank loans in June, more than the £0.2 billion repaid in May and the 15th consecutive month of net repayments. Large non-financial businesses’ borrowed £1.3 billion of bank loans in June compared to £1.6 billion repayments in May.