Credit card borrowing rises to highest level since 2004

Credit card borrowing rose in November to its highest monthly level since 2004 according to latest Bank of England data.

The figures showed individuals borrowed an additional £1.5 billion in all forms of consumer credit, an increase on the £700m borrowed in October, of which £1.2 billion was on credit cards (an increase of £400m when compared to October), as concerns mounted over the impact of high inflation on struggling households.

The annual growth of credit card borrowing rose from 11.5% to 12.2% in November.

The data also showed that mortgage approvals fell to their lowest level in two years as interest rate rises put off buyers. The figures slumped to just over 46,000 in November, down from just under 58,000 in October. The fall in mortgage approvals was another indicator of slowing demand for housing.

Net borrowing of mortgage debt by individuals increased from £3.6 billion to £4.4 billion in November.

Commenting on Bank of England data on consumer credit, Richard Lane, Director of External Affairs at StepChange Debt Charity, said “The impact of the cost of living crisis on people’s finances shows little signs of abating. Although government support is continuing to have a positive effect on the proportion of new StepChange clients with energy arrears, energy debt remains high and cost pressures from elsewhere are still driving people into problem debt.”

“Today’s Bank of England figures showing increased borrowing even before the traditional festive spending period is also worrying, particularly in light of our pre-Christmas research which found that one in twelve UK adults (8%) would be using credit to pay for Christmas. With financial pressures across the board creating problems for an increasing number of households, there is a real danger that people will increasingly be turning to credit to meet essential spending into the new year and beyond.”

Emma Steeley, CEO at Freedom Finance said: “After a couple of months of subdued volumes in the consumer credit sector, borrowing bounced back strongly in November with the highest credit card borrowing levels seen in nearly two decades.”

“Households will have been feeling the pinch ahead of Christmas as the reality of the much-feared October energy price cap kicked in and colder weather forced on the central heating. Borrowing levels typically rise ahead of the festive period as Brits feel the pressure to entertain and this year looks to have been no exception despite the gloomy economic headlines.”

“With rates on borrowing becoming increasingly costly, it is vital that consumers with expensive debt look to consolidate to cheaper options as they reach the end of attractive, interest-free periods or face higher interest repayments on credit card debt built up over last year.”

“It is important that everybody accessing the consumer credit sector is exercising best practise. Shopping around and taking advantage of the latest technologies means would-be borrowers can find the best rates available to them without fear of being rejected and damaging their credit score.”

Sarah Coles, Senior Personal Finance Analyst at Hargreaves Lansdown said “18 months of relentless rises in inflation have left millions of us exhausted. We’re eating into easy access savings, ramping up our card borrowing faster than any time over the past decade, and backing away from the mortgage market. However, the burden of price rises hasn’t fallen equally on all of us, and there are still plenty of people with room to manouvre, who have been making the most of booming savings rates and locking in better deals.”

“While we’ve been working hard to cut costs, there are millions of people who can’t see any alternative to make ends meet other than to borrow more cash. We borrowed another £1.5 billion in November, the lion’s share of which was on credit cards (£1.2 billion). It means card borrowing is up 12.2% in a year – the fastest rate of growth of any time in the past decade. There are two mitigating factors. This is building from a low base – after so much was repaid during the pandemic – so we’re not seeing sky high card borrowing just yet. At this time of year, it’s also likely to include an awful lot of people who use cards to manage particularly expensive months around the Christmas period. However, there are still plenty of people trying to borrow their way through the crisis, and building long-term problems.”

John Phillips, National Operations Director at Just Mortgages said “These figures reinforce my belief that we should embark on the new year with some optimism in the housing market. In what could rightly be described as an annus horribilis in 2022 with interest rates rising eight times, a cost-of-living crisis and war in Europe, house prices continue to rise year on year and although approvals for house purchases fell to a two year low it was far from the drop that some had predicted.”

“Affordability will continue to play an increasingly significant role in mortgage lending this year and although mortgage rates might now start with a four or a five rather than a two or a three this is a new normal that brokers and borrowers can happily live with. Brokers will need to work hard to place cases but faith in property remains high and opportunities exist to grow intermediary businesses in 2023 by diversifying into ancillary lending sectors, boosting remortgage business and making the most of opportunities in protection sales. It’s my belief that 2023 can be as good as an intermediary chooses to make it.”

Adam Oldfield, chief growth officer at Phoebus Software, said “The effect of rising interest rates and inflation have now begun to show in the latest figures from the Bank of England. The fact that the number of approvals in November dropped is no surprise really. We have been expecting to see a tightening in the market ever since the turmoil in government caused a degree of uncertainty we haven’t seen since the beginning of the pandemic.”

“It is likely to be a quiet start to the new year, but it is also the time when people historically dust themselves off after Christmas and the market begins to pick up. It will be interesting to see just how much additional credit card borrowing there was in December. Did people throw caution to the wind and simply pay for Christmas this way? If so, this will have an effect on the way lenders look at their criteria and affordability checks if borrowers have added to their debt without fully preparing for the payback down the line. It may also put pressure on existing borrowers and lenders will need to be fully prepared to ensure exposed borrowers are identified, and assisted, quickly.”

Separate StepChange Debt Charity client data for November 2022 shows the cost of living is still the number one driver of debt among new clients, with more than one in five (21%) citing it as their primary reason for contacting the charity. Women (23%) are more likely than men (17%) to cite this as a reason. A ‘lack of control over finances’ (17%) is the second most common reason for debt, which is cited by 20% of men, compared to 15% of women.

The data also shows the continued positive effect government energy bill support is having – the proportion of new clients with electricity arrears fell another percentage point month-on-month to 27% in November, following a three-percentage point drop from 31% to 28% between September and October. While the proportion of new clients in arrears with gas bills has marginally increased by one percentage point to 24%, this is still down from 26% in September.