
Latest figures from the Bank of England (BoE) has indicated that consumers borrowed a net £1.5 billion on credit cards in February, the highest monthly amount since records began in 1993.
The figures showed that lending to consumers rose by the most in nearly five years in February, jumping 90% compared to January. Consumer credit rose by a net £1.9 billion, with this driven by a record rise in credit card borrowing.
The Bank said the increase pushed the annual growth rate for all forms of unsecured credit from 3.2% to a two-year high of 4.4%, raising the total outstanding balance of consumer credit to £199.5bn.
Net borrowing of mortgage debt by individuals amounted to £4.7 billion in February,down from £5.9 billion in January. Mortgage approvals for house purchases fell slightly to 71,000 in February, from 73,800 in January, but remains above the 12-month pre-pandemic average up to February 2020 of 66,700.
Commenting on the figures, Joanna Elson CBE, Chief Executive of the Money Advice Trust said “The figures, showing a jump in consumer credit borrowing, provide an indicator of the underlying challenges households face in meeting the growing cost of living. Our concern is that more people will be pushed to credit to cover rising bills, which could be storing up problems further down the line when repayments are due.”
“Millions of people are already struggling with the cost of energy, fuel and food – and with April’s energy price rise days away and no respite in sight from other rising prices, this test is only going to get far harder.”
“While the Government’s council tax and energy bill rebates will help some households to a small degree, more targeted support is needed urgently. As a minimum, this should include significantly uprating benefits and introducing further targeted support to help people struggling with the steep increase in their energy bills.”
“The coming months will be a difficult time for millions of people as the mounting pressure on household budgets builds.”
Nitesh Patel, Strategic Economist at Yorkshire Building Society, said “February’s Money and Credit data from the Bank of England suggests that, on one hand, economic activity continues to hold up better than expected and on the other, there are signs that for some households the cost of living crisis might be beginning to bite.”
“Mortgage data suggests housing purchasing activity continued to hold up well particularly when compared to the pre-pandemic figures for 2019. The £4.7bn rise in net mortgage lending and 70,972 mortgage approvals were both higher than their pre-pandemic averages of £4.1bn and 65,700 respectively. Whilst these are down from January, they remain high for this time of the year. Low borrowing costs, a strong jobs markets and importantly remote working are key drivers – and will remain so for the next few months.”
“However, on the savings side the stock of deposits grew by under £4 billion, down from £7.1 billion in January and smaller than the pre-pandemic 2019 average of £4.6bn. With consumer price inflation rising at a faster rate than earnings growth some households may already be dipping into their savings to finance their spending – clearer picture should emerge in the coming months.”
“With real earnings expected to fall this year and if borrowing costs rise then this should dampen consumer spending and slow housing market activity.”
Sarah Coles, Senior Personal Finance Analyst, Hargreaves Lansdown said “Price hikes took a horrible toll in February, as we borrowed an astonishing £1.5 billion on credit cards during the month. This is the biggest monthly hike in card borrowing in at least 30 years. After a year of repaying debts, followed by a year of modest increases in borrowing, this was an eye-watering increase, and could be a worrying sign of things to come.”
“Overall, we borrowed another £1.9 billion in consumer credit – the most since the onset of the pandemic, and almost double the average in the year running up to the crisis (£1 billion).”
“And while overall we continued to save, behind these figures will be people who have eaten their way through their lockdown savings, and faced with alarming price rises across the board, they’re turning to credit cards. Enormous numbers of people have cut their costs as much as they feel able to, and are still spending more than they earn. Credit cards feel like a solution in the short term, but when you’re having to pay interest on your debts, it makes it even harder to make ends meet.
“At times of high inflation, the risk is that this pattern will grow. Not only do prices rise even further, but people who need to make a big purchase worry that by putting it off, it’ll just get even more expensive. As a result, they end up borrowing to buy now, and adding to the pile of debt.”
“The squeeze is starting to be felt in the mortgage market, as enthusiastic buyers start to get cold feet about stretching their finances at the moment. Mortgages borrowing, and loans approved for the coming months fell back during the month, although they still remain robustly above their pre-pandemic averages.”
“This wasn’t a reaction to rises in mortgage rates, because they’ve hardly budged at all. In February the base rate was 0.5% – up 0.4 percentage points from the bottom, but average mortgage rates had risen just 0.1 percentage point. The high street giants, still awash with lockdown savings at 0.01% had plenty of cash to loan at rock bottom rates, so there are still lots of cheap deals around.”
Jonathan Sealey, CEO at specialist lender Hope Capital, said “As mortgage approvals fell from 73,800 in January to 71,000 in February, the statistics recorded last month were still 7% higher than the pre-pandemic average.”
“The main concern continues to be the rise in inflation and the impact this will have on the housing market in the coming months. However, on a positive note, while there was a small dip in February, the increase compared to February 2020, shows that there is still an appetite from people who want to create investment opportunities.
“Many things are out of our control at present, however with the market still remaining buoyant, the best thing we can do as a lender is to create solutions which reflect the demands and needs of brokers and borrowers.”
Richard Pike, Phoebus Software Sales and Marketing Director, said “Although mortgage approvals dipped in February the market is still looking remarkably healthy, in the scheme of things. There may have been some thoughts that, with the situation in Ukraine, the Bank of England might not have raised interest rates this month. However, with inflation racing away to 7.25% the committee had little choice once again.”
“The impact of the increase in the base rate may not be dramatic in and of itself, but taken with the rising cost of living and, looking at the increase in consumer credit borrowing, it is looking like money is getting tighter all the time for many. For homeowners and those looking to secure a new mortgage rates are still low but, as we’ve seen in the last week, are already increasing. However, lenders need to lend and as such will not be looking to overstretch potential or existing borrowers at a time when household expenses are already being put under pressure. Keeping a close eye on, and acting to help, vulnerable borrowers has to be a priority in the coming months.”
Large businesses borrowing from banks rose to £4 billion in February, whilst small and medium sized businesses repaid £0.5 billion. Private non-financial companies (PNFCs) redeemed £4.1 billion in net finance from capital markets.