Credit card borrowing increasing at fastest rate in 17 years

31st May 2022

Latest Bank of England data has indicated that credit card borrowing is rising at its fastest annual rate in 17 years.

The annual growth rate for credit card borrowing hit 11.6% in April – the highest figure since November 2005. The figures also reveal that the rate for all consumer credit increased to 5.7% in April, up from 5.2% in March. This marks the fastest rate of growth since before the pandemic.

UK consumers have now put more than £3 billion on credit cards in the past three months – and another £1.6 billion on other forms of credit, such as car finance and personal loans. Individuals borrowed an extra £1.4 billion in consumer credit in April, exceeding the £1.3 billion increase recorded in March.

The Bank of England figures also revealed that the number of mortgages approved by UK lenders has fallen to its lowest since June 2020, with 65,974 mortgages approved in April. This was down from 69,531 in March and 73,220 in January.

The figures also show that net mortgage borrowing dropped to £4.1bn last month from £6.4bn in March. Mortgage approvals for house purchases also fell, from 69,500 to 66,000. The average rate for a new mortgage rose to 1.82% in April, up from 1.5% in December after the Bank of England raised interest rates four times over the period to reach a 13-year high of 1%.

Responding to the figures Jane Tully, Director of External Affairs and Partnerships at the Money Advice Trust said “With consumer credit borrowing continuing to rise, today’s figures are an ominous sign of the mounting pressure on household finances.  Using credit to cover essential costs, like food and energy, is often a sure sign of financial difficulty, and as we see at National Debtline, can lead to difficulties further down the line if repayments are not able to be met.”

“The Chancellor’s support measures, announced last week, are welcome and should provide some much-needed relief – and for those already struggling, this cannot come soon enough. It is now vital that this support reaches those most in need without delay.”

Michael Davidson, Chief Revenue Officer at Freedom Finance said “Increasing mortgage rates have unsurprisingly led to reduced lending volumes, after significant volatility this may be the start of a return to ‘normal’ pre-pandemic lending activity. We are already seeing an improve vs move trend throughout all our brand partnerships.”

“The ongoing cost of living squeeze has seen consumers turn to credit for every day spending, we are seeing that in credit card use at the moment. It is likely that we’ll see a spike in personal unsecured & secured loans follow, as consumers look to consolidate debt later in the credit cycle, and we expect to see demand for high-quality unsecured credit increase as a natural consequence. Lenders are investing in easy to use online solutions that let borrowers shop around for the best rates easily without unduly harming their credit scores.”

Jayadeep Nair, Chief Product and Marketing Officer at Equifax said “Whichever way you look at it, it’s not an easy time to be making financial decisions. Prices are rising, interest rates are rising, and a recession looks increasingly likely at some point this year. At times like this, when businesses and people are having to make tough calls about whether to buy or borrow, the credit industry plays a vital role in providing flexibility and some much needed stability to financial outgoings.”

“What these figures from the Bank of England highlight, is how fluid the demand for credit currently is. In the mortgage market, net borrowing is down, as people opt to pay down debt to get ahead of anticipated interest rates rise. Meanwhile, borrowing in the consumer credit space is above its pre-pandemic average for the third consecutive month, pointing to greater demand on shorter term forms of borrowing; some of this will be discretionary, but much of it will not.”

“The Government and the Bank of England have taken steps to temper the full impact of the cost of living crisis, most recently with the Energy Bill Discount Scheme, but the measures announced so far will only soften the blow. At Equifax, we have already seen a rise in the number of people struggling to pay bills and pay off existing debts, and much of the demand for new credit is by those looking for a way to ride out the crisis.”

“The credit industry has a huge responsibility, to lend only to those that can afford to borrow, to not turn its back on those sub-prime borrowers that would otherwise be tempted to turn to unregulated or illegitimate sources of capital, and to care for existing customers. This crisis is not like the last. Open Banking and a decade of data science have given us the ability to lend more confidently, more judiciously, and to provide pre-emptive help to those that need it.”

Sarah Coles, Senior Personal Finance Analyst at Hargreaves Lansdown said“The mortgage market hoisted yet another warning sign for property prices, as the number of mortgages being approved for future purchases fell again. Meanwhile, another month of credit card borrowing revealed the growing pressure on all of us.”

“Mortgage approvals are a useful measure of the health of the property market, because they indicate buyer enthusiasm over the coming weeks. The fact that approvals dropped below the pre-pandemic average in April is yet another sign of the heat coming out of the market.”

“It comes hot on the heels of news from Zoopla that house price growth fell again in April, the number of sellers being forced to slash the asking price is rising, and the length of time it’s taking to agree a sale is starting to increase. We also know mortgage companies are down-valuing properties they feel are overpriced, and boosting the costs in affordability calculations – making it harder to borrow. At this stage, the property market is positively festooned with red flags. We’re still not expecting average house prices to fall at this stage, but we can expect price rises to slow significantly, and the market to become increasingly sluggish as we go through the year.”

“We racked up hundreds of millions of pounds more on our credit cards, as horrible price rises left enormous numbers of people with nowhere to turn in April. The energy price cap hike finally kicked in, and anyone who hasn’t found a way to cut costs elsewhere risked facing a nasty shortfall.”

“Even before energy bills sapped the life out of our budgets, we were falling back on our credit cards more, and it was the third consecutive month when we racked up more card debt than before the pandemic.”

“However, this isn’t a sign of huge and overwhelming debt. We’re still borrowing far less on our cards than before the pandemic. The rise in card spending was also lower than in both February and March, so this isn’t a horrifying figure.”

“Richard Pike, Sales and Marketing Director at Phoebus Software, said “Looking at the figures from the Bank of England today it appears that the mortgage market is entering a period of flux.  Inflation is already weighing heavy and, for many people, ensuring that bills are paid is of the greatest importance.  This of course does mean that some people, that may have been thinking of moving, have put the brakes on for now.”

“The fact that borrowing on credit cards is at its highest level since February 2020 perhaps shows that some people may already be turning to alternative credit.  Although there is always the opportunity to remortgage, those on shorter-term fixed rates, with deals coming to an end, are more than likely going to find that any new deal will be at a higher rate than they have been used to.  So the questions are, when should you fix and for how long?”