Consumer credit growth rises by 7.9%

5th May 2023

Latest Bank of England (BoE) data has shown that the annual growth rate for consumer credit rose for the sixth month in a row in March, accelerating from 7.7% in February to 7.9% with consumers borrowing an additional £1.6 billion in consumer credit in March, on net, compared with £1.5 billion borrowed during February.

The figures also showed that mortgage lending to individuals fell from a net flow of £0.7 billion in February to net zero in March. Looking at the period prior to the onset of Covid-19 in March 2020, this is the lowest level of net borrowing since June 2011 (£0.3 billion of net repayment).

The number of mortgages approved by British lenders jumped in March to its highest since October. The number of loan approvals for house purchases rose 18% during the month, from 44,100 in February to 52,000 in March. This is far higher than the 46,250 forecast by economists. 

The value of these approvals also continued its upward trajectory, from £9.6bn in February to £11.4bn in March. 

The number of remortgages also increased, with 32,177 remortgage approvals in March, up from 28,176 the month before. In total these were valued at £6.8bn, up from £5.7bn in February.  However, the figures indicate that net mortgage lending continued to decline, falling from a net flow of just £0.7bn in February to zero in March. 

Commenting on the data, Paul Heywood, Chief Data & Analytics Officer at Equifax UK said “According to the Bank of England’s Money and Credit report, consumer credit rose in March as consumers stepped up borrowing, in part to meet increasing expenses. Upward cost pressures meant wallets are stretched even further; there are serious concerns about how much further borrowing can be increased and belts can be tightened.”

“Despite house purchases experiencing a slump at the beginning of the year, the mortgage markets have remained cautiously optimistic. However, a sizeable portion of the nation’s homeowners, who will face renewal this year, are understandably less optimistic as they are facing significantly higher rates. These higher rates will only compound the impact of price increases elsewhere, increasing the danger of a potential mortgage shock.”

“While the first quarter has proven to be a turbulent time for the entire credit sector, Equifax has continued to work closely with our lending partners to ensure we give them the confidence to lendresponsibly. It remains essential for us that consumers are properly supported and can continue to access the credit they need to live their financial best.”

Sarah Coles, Head of Personal Finance, Hargreaves Lansdown said “We’re spending our savings and racking up borrowing, but this may not be the harbinger of doom it initially seems. The way we’re borrowing, and the fact we’re also flocking to the mortgage market, means there’s every chance we’re splashing the cash because we think we can see light at the end of the tunnel.”

“Mortgage approvals have risen for the second consecutive month. We shouldn’t read too much into this, because it’s still well below the monthly average approvals for 2022 (62,700), but it’s adding fuel to the fires of optimism being lit across the property market.”

“It comes on the back of figures from Nationwide, which said house prices were up 0.5% in April – after falling for seven consecutive months. Zoopla was even more enthusiastic, claiming that the worst may be over for the market – with demand hitting a 2023 high at easter, supply booming, and demand back above the five-year average. The growth in mortgage approvals is due in no small part to falling mortgage rates – which have been creeping south since the peak in October last year. They’re still significantly higher than before the rate rises kicked off, and the falls took a break in March after the surprise inflation bump, so the effective interest rate on new mortgages was up 17 basis points to 4.41% in the month. However, they’ve started falling again, and we expect them to continue to drop through 2023. There has also been a small rally in sentiment. The GfK confidence index shows that people’s confidence in their own finances has picked up slightly over the past three months.”

“There are still headwinds, with inflation still horribly high and worryingly sticky – alongside growing concerns about a global slowdown and possible stagnation. However, there are plenty of people who are hoping the UK can avoid a recession this year, and that jobs could prove reasonably resilient – protecting those with mortgages to pay. There’s also the optimism that falling inflation later this year could help ease the pressure. None of those things are guaranteed to happen, but for the property market right now, it’s enough that people believe they might.”

John Phillips, National Operations Director at Just Mortgages said “It is certainly encouraging to see net mortgage approvals – an indicator of future borrowing – increase for the second month in a row. This certainly mirrors the activity reported by our brokers across the country as more clients continue to get their purchasing plans back on track. 

“Since the start of the year we’ve seen consistent levels of buyer registrations and strong demand for valuations and appointments. This has even been the case during the February half-term and subsequent bank holidays which can typically be a quieter period. In all parts of the country, customers are keen to seek advice and find out what the market actually looks like for them and their situation. To maintain this positive momentum, brokers must be on the front foot and getting in front of as many clients as possible to highlight how the market has changed in just the last month, let alone since the start of the year.”

“Remortgaging will continue to be clear priority as we head further into the year. At Just Mortgages alone, it has gone from 44% of our total mortgages in Q1 2022, to 57% in Q1 2023. As more mortgages mature and borrowers weigh up their options, it’s right to expect that figure to increase. The proactive brokers will be targeting their marketing and pounding the pavement to communicate with the large number of borrowers still to secure the best possible rate.”

Simon Webb, Managing Director of capital markets and finance at LiveMore, said “Mortgage lending was flat in March with net borrowing at zero. This is the seventh fall in as many months and the lowest level in 12 years if you exclude the Covid pandemic lockdown.”

“However, both house purchase and mortgage approvals increased during the month, so we can take some comfort that the market is moving. This is backed up by estate agents reporting an increase in both buyers and sellers and more houses are becoming available. The indications are that mortgage lending will slowly pick up in the second quarter of this year as will housing transactions.”

Adam Oldfield, Chief Revenue Officer at Phoebus Software, said “The increase in approvals for house purchases was substantial and the best sign yet that the housing market has turned a corner.  Add to that the latest report that house prices increased in April and the picture is significantly better than we may have hoped a couple of months ago.  However, the potential of rising mortgage rates will still be weighing heavy for many and the number of buyers willing to take the plunge may not be as great as the number of properties coming to market.  At the moment it appears to be a buyers market, which may well have an effect on house prices in the coming months.”

“The possibility of another interest rate rise when the MPC meets next week will be in the back of many minds, but the attitude seems to be one of determined optimism at the moment.  Whether that will be the case if rates and everyday living costs continue to rise remains to be seen.  It will be incumbent on lenders to ensure that borrowers are aware of how they may be affected down the line.  Luckily for most the original stress testing limits should mean that affordability won’t be an issue at current rates.”