UK personal loan borrowing dips in Q4 2022

Personal loan borrowing fell by nine per cent in the last three months of 2022 compared with the same quarter in 2021, according to new figures from UK Finance.

In its latest Household Finance Review, in collaboration with Accenture, it highlighted how Liz Truss’ government’s mini budget in September 2022 caused consumer confidence to fall below already-low levels. This led to “clear changes in the way consumers were spending their money,” it said.

The review also noted that “concerns around the environment and the rising cost of living prompted a shift in spending away from luxuries, towards second-hand and DIY shopping”.

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“Spending on travel, particularly air travel, which had seen significant growth in the early months of 2022, fell away sharply in the final quarter of 2022,” the analysis said. “Other areas saw a marked increase in spending such as second-hand shops, handcraft stores and DIY stores, which all saw a sharp and sustained rise throughout 2022.

“While this can be seen as a symptom of the rising cost of living, these changes in consumer spending patterns also reflect a societal shift towards recycling and upcycling.”

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Household savings remained essentially flat in the fourth quarter. However, following nearly a decade of decline in longer-term savings, there was growth at the end of last year as increasing savings rates boosted demand.

And despite the concerns of households about their finances, overall card spending remained steady in the last three months of 2022.

In the mortgage market, gross lending grew by 1.9 per cent last year, the review said. “House purchase activity was weaker throughout 2022 compared with a bumper year in 2021, but this was offset by rising house prices and a strong refinancing market,” it commented.

“Following the September mini budget the flow of mortgage applications submitted to lenders fell sharply to levels considerably below those seen in the final quarter of 2021.

“At the same time, affordability constraints meant that a greater number of households are borrowing over a longer mortgage term, with the average term for a first-time buyer loans now at around 31 years.

“Interest rate rises and cost of living pressures contributed to a modest rise in the number of people in arrears in the fourth quarter. The range and extent of mortgage forbearance available from lenders has helped keep arrears down, and we would encourage anyone struggling with their payments to speak to their lender as early as possible to talk through the options available to help.”

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“As cost of living pressures persist throughout this year, many people may need to draw upon their savings to help with their bills,” said Eric Leenders, managing director of personal finance at UK Finance. “Lenders are looking to help anyone who is worried about their mortgage, loan or credit card payments. Those worried about their finances should speak to their lender as soon as possible to discuss the options available.”