Spending squeeze led to rise in use of credit products before festive period

Myron Jobson, senior personal finance analyst at interactive investor, comments on the latest Bank of England Money & Credit report.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The latest Bank of England credit data suggests that the spending squeeze has resulted in the uptick in usage of credit cards and other credit products ahead of the festive period. The amount of money being borrowed by consumers in the run-up to Christmas rose by £1.5 billion, largely driven by an additional £1.2 billion of credit card borrowing. This suggests that many Britons will be suffering from a post-Christmas debt hangover and will now have to keep a watchful eye on their finances to avoid debt spiralling out of control.

“When it comes to savings, although we saved an additional £5.7 billion with banks and building societies in November, this is down from £6.1 billion in October. This is despite savings rates creeping up again, suggesting that more and more people are being forced to raid savings to help tide them over amid the cost-of-living crisis and to fund gifts and experiences in the lead up to the festive period.”

Mortgages

“The latest mortgage data from the BoE suggests that we are entering the next stage of the housing market downturn. Mortgage approvals fell to the lowest level since June 2020 in November, as the reverberations of the violent gyrations in the money market in the fallout from the mini-budget in late September, which wreaked havoc on the mortgage marketplace, started to filter through.

“The month-on-month uptick in net borrowing of mortgage debt by individuals to £4.4 billion in November, for the most part, is likely to be the manifestation of loans agreed months before sales were completed and, as such, many transactions would have started before the infamous fiscal event.

“A combination of heightened mortgage rates, which have hit levels not seen since the financial crisis, and the cost-of-living crunch have become a growing blocker for wannabe homeowners and those seeking to move up the property ladder.

“The runaway housing market appears to be running out of steam as affordability pressures from high inflation, a fall in real wages and the rise in mortgage rates bite. This is likely to bring house prices back down to earth following a meteoric surge in recent history.”