Households’ credit card borrowing increased in June at the fastest annual rate since 2005, while the amount of money being deposited into accounts nosedived.
Commentators said the figures, published by the Bank of England, reflect the challenges faced by households grappling with surging living costs.
Overall, consumer credit, which includes borrowing on credit cards, overdrafts, personal loans and car finance, increased by 6.5% annually in June – which is the fastest rate since a 6.5% increase was also recorded in May 2019.
Within this, the annual growth rate of credit card borrowing was 12.5%.
This was the highest rate since a 12.6% increase was recorded in November 2005, the Bank of England said.
Applications for credit are now back to pre-pandemic levels— Paul Heywood, Equifax
The combined net flow of money going into both deposits into banks and building societies as well as NS&I accounts in June was £1.9 billion.
This was around a third of the total amount deposited in May, when the figure was £5.6 billion.
It was also well below an average of £4.7 billion during the 12-month pre-pandemic period up to February 2020, according to the figures in the Bank’s Money and Credit report.
Paul Heywood, chief data and analytics officer at credit information company Equifax, said: “Higher income households are increasingly dipping into their savings, reversing a trend seen during the pandemic, while those on lower incomes are turning to the credit industry to help them ride out the storm.
“Applications for credit are now back to pre-pandemic levels, and, as the cost-of-living crisis continues to unfurl, this demand isn’t going anywhere.
“Lenders will need to find ways to service this demand responsibly and comprehensively, and should where possible be using data to fight the urge to retrench to the prime end of the market.”
The jump in consumer credit borrowing highlights just how challenging the cost-of-living crisis is becoming— Alice Haine, Bestinvest
Karim Haji, UK head of financial services at KPMG, said: “Major UK banks have this week reported no huge deterioration in credit quality but they are mindful of the need to support the most vulnerable customers through what will be a hugely challenging second half of the year.
“Meanwhile, reports from other parts of the economy, such as supermarkets, indicate that people are moderating their spending as far as they can to cope with the rising costs.”
Alice Haine, personal finance analyst at Bestinvest, said: “The jump in consumer credit borrowing highlights just how challenging the cost-of-living crisis is becoming for people across the country as soaring inflation, rising interest rates and falling real wages hit disposable incomes hard.”
She continued: “With Liz Truss and Rishi Sunak battling it out to become the next prime minister, it means any further respite from new fiscal policies is still some way off, leaving households to sweat it out as the cost-of-living crisis heats up further.”
A package of cost-of-living support is being distributed to households over the coming months, including a £400 discount on energy bills and targeted support for particularly vulnerable households.
Households may already be dipping into their savings to finance their spending— Nitesh Patel, Yorkshire Building Society
Mortgage approvals for both house purchase and re-mortgaging fell month on month in June.
The number of mortgage approvals made to home-buyers decreased to 63,700 in June, from 65,700 in May, which is below the 12-month pre-pandemic average up to February 2020 of 66,700.
Tomer Aboody, director of property lender MT Finance, said: “With the prospect of higher mortgage rates on the cards, buyers are taking advantage of the last remaining lower rates before the inevitable spike.”
Approvals for re-mortgaging (which only capture re-mortgaging with a different lender) decreased to 44,000 in June, from 47,200 in May.
Nitesh Patel, strategic economist at Yorkshire Building Society, said: “These latest figures are a far cry from the past couple of years when mortgage volumes grew rapidly, household savings were high and borrowing low.
“With consumer price inflation rising at the fastest rate in 40 years and real earnings growth falling sharply, it looks like households may already be dipping into their savings to finance their spending.
“With real earnings expected to fall further this year and borrowing costs continuing to rise, we should see consumer spending dampen and housing market activity to slow, and particularly house price growth to ease – which would be welcomed by potential first-time buyers.”
