Households withdrew record £4.6bn in May

The Bank of England’s Money and Credit statistics for May have shown households withdrew £4.6 billion from banks and building societies across the month – the highest level of household withdrawals on record – suggesting an increase in people turning to savings in order to cope with the cost of living.

Individuals repaid £0.1 billion of mortgage debt in May. This followed the record £1.5 billion net repayments in April (if the period since the onset of the Covid-19 pandemic is excluded).

Whilst mortgage approvals for house purchases increased from 49,000 in April to 50,500 in May, while approvals for remortgaging saw a rise from 32,500 to 33,600 during the same period.

Net borrowing on consumer credit by individuals decreased from £1.5 billion in April to £1.1 billion in May.

Commenting on the dat Richard Lane, Director of External Affairs at StepChange, said “This is the latest in a long line of warnings that more and more people are struggling to cope with the cost of living. Whether it’s a sky-high energy bill, a sudden jump in mortgage payments or the gradual increase of the price of the weekly food shop, cost pressures are everywhere and eroding people’s financial headroom, leaving them more vulnerable to harmful borrowing and problem debt.”

“Supporting people to build savings and their financial resilience is vital to being able to cope with income shocks, so we would urge lenders to be attuned to early warning signs of financial difficulty and offer support as soon as possible. If anyone is worried about their financial situation, free, impartial advice is available from debt advice organisations like StepChange.”

Paul Heywood, Chief Data & Analytics Officer at Equifax said “Today’s figures from the Bank of England serve as a time capsule back to a less tumultuous period in May – a time the Bank and Governor likely wish they could get back to.” 

“Consumers, meanwhile, are facing the financial double whammy of high costs for both goods and borrowing as both May and June saw inflation remain at historic levels. The Bank’s figures show that the fiscal policy of base rate rises has depressed consumer borrowing, but there is likely to be more pain on the horizon as rates are predicted to trend upwards over the summer.”

“Despite mortgage approvals increasing, there remains a serious concern that the UK is headed for a ‘mortgage shock’ as homeowners come to the end of their pre-inflation deals. While consumers in the UK have done remarkably well to manage their finances thus far, we are seeing signs of emerging stress.”

“The Chancellor’s discussions with mortgage lenders last week demonstrated the need for the credit industry to continue to be open and available to customers during this difficult time. Equifax and our lending partners are working continuously to provide the support and advice that our customers need to live their financial best and access the credit they need.”

John Phillips, National Operations Director at Just Mortgages said “Despite rising interest rates and a real dip in consumer confidence, the Bank of England statistics have once again defied expectations with a rise in both the number and the value of mortgage approvals in May.  This once again shows the resilience of the UK housing market and the appetite or need of people still to buy property and move home.”

“The rise in the number of remortgages is less astonishing – in fact it’s more of a surprise that the numbers aren’t higher, with 1.5million people due to come off a fixed rate this year.  But with continued escalation of interest rates, many people could face their monthly payments tripling which will cause a real payment shock for many.”

“While conditions are definitely tougher for mortgage brokers, arguably their help and advice have never been more needed than it is right now. Brokers are needed not only to find like-for-like remortgages but also to find more creative solutions for those who are really struggling to meet the new payment amounts, which may involve increasing the term of the mortgage for example, while always making borrowers aware of the implications on the overall amount of interest they will pay.”

Sarah Coles, Head of Personal Finance at Hargreaves Lansdown said “We’re raiding our savings at a record rate, with £4.6 billion pulled from banks and building societies in May – driven by an incredible £14.7 withdrawn from easy access savings. Some of this is some sensible juggling, as we move into fixed rate deals, competitive NS&I accounts and ISAs. However, there’s a real risk that millions of people are being forced to erode their savings to make ends meet. Meanwhile, there was a small bump in mortgage approvals for new purchases in May, as rates started to rise, and potential buyers rushed to get their loan in place before things got even worse.”

“Meanwhile, for those on lower incomes, debt is a real threat. We haven’t seen a boom in consumer credit – it was up £1.1 billion this month, and the annual growth rate for credit cards fell from 12.7% to 12.4%. Instead, we’re more likely to see those on lower incomes fall behind on bills, storing up enormous issues for finances that are already stretched wafer thin.”

“We’re preparing for the worst in the mortgage market, with an increase in repayments. It appears that those who can afford it, and are worried by the threat of a looming remortgage, are making overpayments while they can.”

“Meanwhile we saw the number of mortgages approved for the coming months rise again. It wasn’t an enormous leap, and remains below March’s level, but will include plenty of potential buyers who are committed to moving home, and rushed to get a bearable mortgage rate as they saw more rate hikes coming down the track. The average rate on new mortgages rose 10 basis points to 4.56% in May, and we know it’s far higher now. It’s highly unlikely this will herald the beginning of a period of high demand for mortgages, and is more likely to be a final flurry before a general decline.”