Credit borrowing doubled in January

Latest Bank of England (BoE) data has shown that consumers borrowed in January with an additional £1.6 billion in consumer credit compared with £0.8 billion borrowed in December. This was split between £1.1 billion of borrowing on credit cards and £0.5 billion of borrowing through other forms of consumer credit.

Credit figures show consumer credit grew at 7.5 percent in January 2023, up from 7.2 percent in December 2022.

The data also showed that UK banks approved the lowest number of mortgages since 2009, (excluding a dip seen at the start of the pandemic). The report shows that 39,637 mortgages for house purchase were approved during the month, down from 40,540 in December. This marks the fifth consecutive month where the number of approvals was down.

Net mortgage lending to individuals decreased from £3.1 billion to £2.5 billion in January. The value of house purchase approvals dipped from £9bn to £8.8bn.

Commenting on the data Paul Heywood, Chief Data & Analytics Officer at Equifax said “Despite a tenth consecutive rate rise from the Bank of England, today’s Money and Credit data shows borrowing remains an attractive option for consumers, even in the face of the UK’s uncertain economic situation.”

“Whilst the Bank’s interest rate increases may have boosted the attractiveness of savings, the reality of increased costs has likely led many households to dip further into essential reserves. These reserves may in turn be supplemented by high-cost short-term credit options to maintain a certain living standard, leading to a further squeeze on households already facing a real-terms pay cut due to inflation.”

“With these high borrowing costs, we can expect to see the total value of consumer borrowing continue to increase. Although, if the Bank of England succeeds in taking some heat out of the market, we may see borrowing levels fall in real terms.”

“There are certainly challenges ahead for borrowers and lenders, however the credit sector is prepared to meet these concerns and ensure that borrowers are protected and supported with the knowledge to ensure they can access the credit products they need.”

John Phillips, National Operations Director at Just Mortgages said “There are many that think my continuing optimism in the housing market is unfounded but with house prices rising by 9.8% in the 12 months to December 2022 a slowdown in lending is not a disaster and a long way from being a crisis.  After the blip caused by the mini-budget, mortgage rates have continued to fall and the ‘effective’ interest rate i.e. the actual interest rate paid on newly drawn mortgages was 3.88% in January which is positive for those coming off fixed rates this year although there is no doubt many will need to plan for higher monthly payments.”

“I believe that re-mortgaging will take centre stage in 2023 and brokers need to start communicating with borrowers now in order to ensure they help them secure the best possible rates when their current deals end. Borrowers are going to face increasingly stringent affordability conditions in light of fuel and food costs but there are still plenty of deals available and resilient house prices should be a cause for some optimism.” 

Today’s Bank of England Money and Credit figures show consumer credit grew at 7.5 percent in January 2023, up from 7.2 percent in December 2022.  The annual growth rate of credit card borrowing rose from 12.4 percent to 13.5 percent in January, the highest level since October 2005, with outstanding balances for consumer credit now standing at £209.6 billion.

A growing proportion of callers to the charity’s National Debtline service say they are using credit to pay for essentials. Findings from a recent survey of callers to National Debtline:

One in three (32 percent) said they had used credit to pay for essential household bills, including food and groceries in the last two years.
17 percent said they had used credit to pay for energy bills in 2022, up from 8 percent in 2021.
11 percent of callers surveyed said they had used credit to pay for council tax in 2022, up from four percent the previous year.

Joanna Elson CBE, Chief Executive of the Money Advice Trust, the charity that runs National Debtline and Business Debtline, said “The rise in consumer credit borrowing is a sign of the mounting pressure on households and the difficult choices many are facing as incomes can’t keep up with rising costs.”

“At National Debtline we are hearing from more people having to use credit to cover essential costs, including food, energy and council tax bills. And with the double whammy of energy prices rises and increases in council tax coming in April, for many, the situation is set to get harder.”