Mortgage lending down, consumer credit up as rising cost of living bites

interactive investor comments on the latest Bank of England Money and Credit report.

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Mortgage borrowing and approvals fell below their 12-month pre-pandemic averages in April. Homebuyers are being hit by a triple whammy of surging house prices, rising mortgage rates and the cost-of-living squeeze - forcing many with aspirations to climb up the property ladder to dream on.

“Homebuyers’ attempts to stretch their budgets to purchase a property is increasingly being thwarted by the cost-of-living crisis, with inflation surging to 40 year high and expected to reach double digits soon. The rising cost of rent, up 11% on average over the past year according to recent research by Zoopla, makes it harder to save for a property.

“The likelihood of higher interest rates to combat soaring inflation means that things are set to get tougher from an affordability perspective.

“Remortgaging approvals fell slightly in April, but with interest rates on the up and a number of fixed rate deals due for renewal, we could see more remortgages in the coming months.”

Consumer credit

“UK consumers are increasingly relying on debt to tide them over amid the soaring cost of living. Consumers borrowed an addition £1.4billion last month, with new lending on credit cards accounting for half.

“April was a particularly agonising month for our wallets, with a hike in the energy price cap adding £693 onto the average yearly energy bill, while rises in council tax in many areas, the cost of broadband, mobile phone tariffs, food and petrol tightened the squeeze on households budgets.

“With runaway inflation and rising interest rates, things are going to get worse before they get better for consumers. Those with high levels of debt should consider what they can do now to reduce their debts as the cost of credit is only rising just as the prices of everyday essentials are flying.

“Those struggling to keep on top of their finances needn’t suffer in silence. The key is to act swiftly and contact creditors for more support. It is worth consulting a debt advice charity such as StepChange or Turn2Us and they will go through all of your options.

“The increase in consumer credit also suggests that the big consumer savings pile, the result of the accidental savers phenomenon where household savings grew passively as outgoings were largely cut during the pandemic, is quickly being eroded amid rising prices.”

Savings

“The net flow into savings accounts in April was 13% higher than the monthly average over the 12-month pre-pandemic period up to February 2020. Our enthusiasm for saving has been renewed following a reprieve in savings rates from rock bottom levels after recent increases to the rate of interest. There is also a budding appreciation of the importance of building an ample cash buffer amid rising prices - three months’ salary is a good rule of thumb.”

Key points:

• Net borrowing of mortgage debt by individuals decreased to £4.1 billion in April, down from £6.4 billion in March. Mortgage approvals for house purchases also decreased to 66,000 in April from 69,500 in March.
• Both measures are slightly below their 12-month pre-pandemic averages up to February 2020.
• Consumers borrowed an additional £1.4 billion in consumer credit, on net, of which £0.7 billion was new lending on credit cards.
• The combined net flow into both deposits and NS&I accounts in April was £6.3 billion, compared to an average monthly net flow of £5.5 billion during the 12-month pre-pandemic period up to February 2020.