Consumer spending remains strong

Latest UK Finance data has found that despite the continuing collapse in confidence during Q3, consumer spending remained strong overall, although inflation masked weaker activity.

The Personal loan borrowing to fund larger purchases fell away, suggesting the “make hay while the sun shines” effects seen in Q2 may have
abated. The figures showed that house purchase activity remains on trend with pre-Covid-19 levels but weakness is expected ahead in the face of increasingly
stretched affordability and a softer labour market in 2023 as we head into a recessionary period.

Refinancing remains robust by virtue of a strong maturity schedule, but inflation and interest rate rises make the prospects yet more
challenging for the 1.8 million fixed rate loans set to mature next year, with significant numbers seeing the flex in their budgets eroded.

There are tentative early signs of stress in unsecured borrowing, but aggregate data likely masks more significant difficulties among
lower-income cohorts. Headline mortgage arrears were essentially flat overall, but earlier arrears rose, suggesting that the expected
upturn in the arrears cycle may have begun as cost-of-living increases and higher interest rates begin to take their toll.

Even with an expected softening in the labour market and escalating cost-of-living pressures, we anticipate most customers will be
able to maintain payments, while business as usual forbearance options offered by lenders to customers in difficulty will help them

Commenting on the figures. Simon Webb, Managing Director of Capital Markets and Finance at LiveMore, said “This data shows that half of borrowers are now taking out a mortgage over 30 years, instead of what used to be the more usual 25 years.”

“The increase in house prices has been a significant factor in this but now rising rates are impacting affordability. This is only likely to continue as the cost of living crisis looks set to continue for the foreseeable future.”

Richard Pike, Phoebus Software Chief Sales and Marketing Officer, said “Although the data in the latest UK Finance household spending review is from Q3, it does give us a more overarching picture of the market and what may be to come. As we head towards the new year we are unlikely to see much change during what is traditionally a quieter time of the year. However, we should be prepared for a slower pick-up than we would normally expect as consumers count the cost of Christmas along with rising costs generally. Although mortgage rates have been coming down recently, this may not be the case if the Bank of England puts the base rate up again next week.”

“Seeing that early arrears were on the rise is a note of caution for lenders to be prepared going into 2023. They will not only need staff on the ground to assist borrowers, but they will also need all their systems in place to detect early signs of borrowers in difficulty. Without the proper back-office technology the process of early detection and intervention is more difficult and potentially damaging down the line. It’s a case now of being prepared.”