Households borrowing on credit cards increases

Latest figures from the Bank of England (BoE) show that credit card spending increased in November, with spending and borrowing showing signs of normalising after being distorted by pandemic-driven support measures. The report shows that £1.2 billion was borrowed in November using credit cards, overdrafts and personal loans, with £862 million spent on credit cards. This was the highest total since July 2020 and lines up with pre-pandemic averages.

Net borrowing of mortgage debt by individuals amounted to £3.7 billion in November with mortgage approvals for house purchase were relatively unchanged at 66,964 in November, close to the 12-month average up to February 2020 of 66,700, down on the 67,103 recorded in October.

Banks lent £3.7 billion against homes in November, with this £2.9 billion below the 12-month average to June 2021.

Commenting on the figures Sarah Coles, Senior Personal Finance Analyst at Hargreaves Lansdown said “Consumer borrowing saw its first positive annual growth since the onset of the pandemic, while savings were less than half the average of the previous 12 months, and even below pre-pandemic levels.”

“One major component of consumer borrowing is motor finance, and the runaway cost of new and used cars has meant we’re taking larger loans. In November, the cost of second-hand cars had risen 27.1% in a year, so it’s hardly surprising that we’re having to borrow more to cover the cost.”

“The timing couldn’t have been worse, as rates on loans and overdrafts started to climb towards the end of the year, as concerns about inflation led to speculation that the Bank of England was set to raise rates. The rise from 0.1% to 0.25% was eventually put off until December, but was priced into the cost of borrowing well before then.”

“Mortgage borrowing, meanwhile, recovered slightly from the drop in October after the end of the stamp duty holiday, but is well below the levels we saw when the stamp duty holiday was at its most generous. Mortgage rates hit a record low in November, but this will be the bottom because banks reacted quickly when rates rose the following month. However, with base rates at just 0.25%, we don’t expect this to make a significant dent in demand.”

Richard Pike, Phoebus Software Sales and Marketing Director, said “Starting the new year with a look back to November gives us an idea of things to come, especially when we look at remortgaging. The fact that approvals for remortgaging rose in November shows that there are people that have either given up looking for available property to move to or that are determined to lock into a longer term-fixed rate deal before interest rates rise again.”

“With UK Finance reporting that almost fifty per cent of borrowers are now on five-year fixed rate deals, this looks like a trend that is set to last as the cost of living rises and concerns over affordability increase.”

Separately BoE figures showed that large businesses borrowed £2.8 billion in loans from banks in November, whilst small and medium-sized businesses repaid £0.8 billion.