Consumers Save Less, Increase Credit Card Debt, BoE Says
People borrow more and save less, according to the Bank of England Money and Credit Report (November) released today. This is despite rising inflation and rising interest rates.
BoE data shows individuals collectively borrowed Â£ 1.2bn ($ 1.6bn) of consumer credit in November, the majority of that – Â£ 0.9bn – including additional credit card borrowing, the highest net borrowing recorded since July 2020.
Meanwhile, household cash deposits grew at a slower pace in November – by Â£ 4.5bn compared to the Â£ 5.2bn increase in October. Households also deposited an additional Â£ 0.2 billion in National Savings and Investment Accounts (NS&I) in November.
Analysts are divided on whether this increase in the level of borrowing should cause concern. Simon Lister of financial comparison site InvestingReviews.co.uk warned: âThe level of consumer credit taken out in November should be a huge red flag for Threadneedle Street.
âConsumers already face record inflation, rising interest rates and economic uncertainty, and now they must do so under the weight of debt.
“The fallout from the pandemic and its impact on households and businesses have yet to be felt and it is only a matter of time before they do.”
Senior Personal Finance Analyst at Hargreaves Lansdown, Sarah Coles added: âOur timing could not have been worse: borrowing skyrocketed and savings plummeted, just as interest rates started to rise. Consumer borrowing saw its first positive annual growth since the start of the pandemic, while savings were less than half of the previous 12-month average, and even below pre-pandemic levels.
âSpending cuts have put our budgets under real pressure, with prices rising on all sides and inflation hitting 5.1% in November. Many of us have turned to credit cards to bridge the gap as the price of everything from energy bills to filling the car or shopping cart has skyrocketed.
“We also flashed plastic more in November as we were shopping for early Christmas shopping – lest shortages of everything from toys to turkeys spoil the festivities.”
But Bethany Beckett, UK economist at Capital Economics, said the figures suggested a boost in confidence in the middle of the fourth quarter, which “prompted households to borrow and save to get back to ‘normal’.”
Increase in mortgage debt
At the same time, the BoE reported that net borrowing of mortgage debt by individuals rose to Â£ 3.7bn in November, from Â£ 1.1bn in October. November’s jump follows weak net lending figures in October after borrowing was brought forward in September to take advantage of the stamp duty property tax relief before it was completely phased out.
However, net borrowing edged down in November to Â£ 2.9 billion, which is below the 12-month average reached in June of last year when the stamp duty holiday began.
Gross loans rose to Â£ 22.1bn in November from Â£ 19.5bn reported in October, while gross repayments reached Â£ 19.4bn from Â£ 18.2bn in October.
Sluggish housing market?
Approvals for home purchases remained relatively stable at 67,000 in November, the lowest since June 2020, when there were 40,500 approvals.
âHome purchase mortgage approvals fell for the sixth consecutive month in November and were very close to their 2015-2019 average (66,400). We expect approvals to remain close to the November level in the first half of 2022.
âTo be sure, the balance of inquiries from new buyers in the RICS residential market survey increased in November to its highest level since May. But rising mortgage rates look set to weigh on the housing market.
âThe average quoted rate for a two-year fixed-rate mortgage, with a loan-to-value ratio of 75%, jumped to 1.52% in November, from 1.30% in October, and will likely increase to around 1%. , 7% in March, once the full impact of the recent increase in banks’ wholesale funding costs was seen, âsaid Samuel Tombs, UK chief economist at Pantheon Economics.
Record remortgage activity
Additionally, remortgaging approvals rose to 44,500 in November, which is low compared to the 12-month average through February 2020 of 49,500. But that is set to change according to some analysts.
âDemand levels remained strong until Christmas as people looked to take advantage of low rates and protect themselves against a possible rate hike. Given the extraordinary turbulence of the year in general, the mortgage and real estate markets ended 2021 on a high note.
“We expect 2022 to be a banner year for remortgage activity with a huge number of borrowers coming to the end of their existing mortgage products, all of whom will be keen to secure the lowest available rates as soon as possible. “said Andrew Mortlake. , MD of London-based independent mortgage broker Coreco.
Read more: UK retail price inflation rises in December, set to rise further
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