Demand for consumer credit returns to pre-pandemic levels
Demand for consumer credit products such as personal loans has returned to pre-pandemic levels, with more than £1.8bn borrowed during June 2022.
This represents a 6.5 per cent increase in consumer borrowing month-on-month, and the highest rate since May 2019.
According to the latest Bank of England money and credit statistics, £1bn was charged to credit cards in June, while £800m was borrowed through other forms of consumer credit such as car dealership finance and personal loans.
The annual growth rate of credit card borrowing was 12.5 per cent, while other forms of consumer credit was 4.1 per cent. These were the highest rates since November 2005 and March 2020, respectively.
The central bank’s data also showed a significant drop in household savings last month, as the cost of living crisis deepened. UK households deposited an additional £1.5bn with banks and building societies in June – down from £5.2bn in May.
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Paul Heywood, chief data and analytics officer at Equifax, noted that the latest money and credit statistics suggest that lenders will have to “fight the urge to retrench to the prime end of the market.”
“As prices rise, and disposable income shrinks, consumers are having to find ways to top up the money flowing into their current accounts,” he 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.”
Meanwhile, mortgage lending declined in June, with approvals for house purchases falling 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.
“The monthly decline in the total amount of borrowed could be the clearest sign yet that nervousness over inflation and the crippling cost-of-living crisis is finally seeping into the UK’s red-hot property market,” warned Alice Haine, a personal finance analyst at investment platform Bestinvest.
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“While the drop in mortgage approvals to 63,700 in June from 65,700 in May could indicate that buyers and lenders are approaching the market with more trepidation, this data set has been very volatile in recent months.
“The defiant data for May – when mortgage lending rose by the most in eight months despite the headwinds caused by soaring inflation – is certainly testament to that.
“But club the Bank of England’s June data with reports of a softening in new buyer enquiries and a rise in mortgage switches as homeowners race to secure lower rates on their existing properties before interest rates ramp up further, and it seems the housing market, which boomed during the Covid-19 pandemic, is finally losing momentum.”
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