Unsecured debt levels increase in line with spending

New analysis by UK Finance has indicated that unsecured debt levels have increased in line with spending, but customers continue to pay off their card bills on time each month.

The analysis also indicated that mortgage arrears ticked down overall but heavier arrears continued to rise. Possessions increased slowly but a substantial backlog of cases remains following the moratorium. However an improving labour market outlook should help mitigate loan payment problems, but downside risks remain, most significantly from unemployment and rising inflation.

The report also shows that spending patterns continued to recover but remain below pre-pandemic trends, as some activities remain restricted. House purchase lending dropped sharply in Q3 but remained positive, with activity strongest away from the south of England.

With the final phase of the stamp duty exemption benefitting lower-priced property, home mover activity fell away but barring a full reversal in Q4, purchase activity in 2021 is likely to reach the highest level since 2007.

Eric Leenders, Managing Director, Personal Finance said “Consumers continued their return to business-as-usual in Q3 2021, with a further increase in household spending and particular strength in the mortgage market in the final phase of the stamp duty holiday.”

“Following the end of the furlough scheme and the stamp duty holiday, activity in 2022 will inevitably be weaker than this year but an improving labour market outlook gives cause for cautious optimism. However, there are downside risks, including from rising inflation, which have the potential to constrain activity.”

“While our data shows that the vast majority of customers are managing their borrowing well, lenders continue to provide tailored forbearance and support to borrowers who need help.Anyone experiencing financial difficulty should contact their finance provider as soon as possible to discuss options available.”

Danni Hewson AJ Bell Financial Analyst, said “Lockdown’s which forced many of us to spend weeks within the confines of our homes also made many of us rethink what it was we wanted from those four walls.  Mix in a stamp duty holiday and you got a recipe to set the housing market on fire.  Since last March house prices have shot up as people were prepared to pay a premium for the space they wanted and knew money was often the only thing that would enamour them to sellers.”

“Fast forward to this autumn and the market is still toasty warm despite the end of the chancellor’s tax break. Fuelled by competition amongst lenders and yet another shift as life returns to some kind of normal bringing cities, and the life they offer, back in vogue.  First time buyers may well be making the most of lockdown savings, cash they didn’t spend on holidays and entertainment and they’ll definitely have one eye on the Bank of England.  The threat of rate rises will add to the current fervour for property, would-be-movers will make the most of the Christmas holidays to scout perspective homes in a bid to get onto whatever rung of the ladder they are aiming for.”

“Confidence is crucial.  People are still worried about the Omicron variant and the potential impact it could have on the country’s economic well-being.  For some workers in industries like hospitality and retail there’s still a note of caution which could impact any moving plans they might harbour.  The uncertainty is likely to slow the market and there is no doubt that the kind of price rises that we’ve seen over the last 18 months are unsustainable.  Lockdown savings are a far distant memory for many people and with price rises squeezing budgets many people will already be looking at the current average house price and wincing.”

“There has to be a levelling off if demand is to be sustainable, many people are already skirting the top end of affordability. And whilst working from home has enabled many people to move location in order to find affordability, a return to offices or even a hybrid model will limit that practice going forward. Add in the fact that those areas that had offered greater value for money are now themselves coming in at a price which will make some hopeful homeowners sigh in despair.”

“House builders will need to be canny over the next couple of years – delivering quality at a price that’s fair for consumers and shareholders alike.  That balance will be a difficult one to strike with labour shortages and rising costs already impacting margins.”