Household non-mortgage borrowing rose in January at the fastest annual rate since the UK’s coronavirus lockdowns began.
The annual growth rate of borrowing using various forms of consumer credit accelerated to 3.2% in January from 1.5% in December, the Bank of England said.
This is the highest annual growth rate since March 2020, when the increase was 3.7%.
Consumer credit includes borrowing using methods such as credit cards, personal loans, overdrafts, and auto financing.
In the January total, the annual growth rates for credit cards and other forms of consumer credit were 6.2% and 2.0% respectively.
The situation is likely to worsen in the short term, with further increases in food, gasoline and energy prices
Paul Heywood, director of data and analytics at Equifax UK, said that with further interest rate hikes expected and a cost of living crisis weighing on consumers, “it was only a matter of time before the ripples are felt in the credit sector”. .
He added: “The (Bank of England) data echoes what we’ve seen here at Equifax that consumers are starting to tighten their belts, paying off less debt, and an ever-increasing number even fall behind on their loan repayments. , particularly in the field of consumer credit.
Martin Beck, chief economic adviser to the EY ITEM club, said: “Increasing pressure on household finances is likely to present a more serious headwind to the economy, and the situation is likely to worsen further. short term, with further increases in food, gasoline and energy prices looking likely.
The Bank’s Money and Credit report also says around 74,000 mortgage approvals were granted to homebuyers in January, the highest total since 75,900 approvals were recorded. in July 2021.
Going forward, people’s borrowing power is likely to decline as lenders factor in these additional costs.
Remortgage approvals also rose, to 46,200 in January. Figures only reflect re-mortgage with a different lender. The remortgage total was the highest since 52,300 remortgage approvals were recorded in February 2020. But the latest remortgage figure was still below typical monthly totals seen in the run-up to the coronavirus pandemic.
Jason Tebb, managing director of real estate research website OnTheMarket.com, said: “The signs from the housing market at the start of 2022 are encouraging. There are still plenty of potential buyers who didn’t move last year and are still eager to do so.
Andrew Montlake, managing director of mortgage broker Coreco, said: “Interest rates are rising to contain spiraling inflation, tax hikes are underway, energy bills are rising and food prices are also accelerating at a breakneck pace.
“Going forward, people’s borrowing power is likely to decline as lenders factor in these additional costs. However, we are still in an extremely low interest rate environment with fierce competition between lenders, and this will continue to generate some level of transactions.
Mark Harris, managing director of mortgage broker SPF Private Clients, said: “The cheapest mortgage rates may be long gone, with several lenders raising rates amid the general movement in money market rates. increase, but that does not discourage buyers.
“Rates remain at relatively low levels from a historical perspective, so stretched affordability has not yet become an issue for many.”
The sharp decline in consumer confidence this year also suggests that households will seek to maintain a large reserve of savings
Households also deposited £7.8bn in banks, building societies and NS&I accounts, according to the latest monthly figures.
This figure was lower than the average of £9.4bn deposited per month in the previous year, although it was still higher than the average of £5.5bn deposited per month at the approach to the pandemic.
The news is slightly better for savers, as the typical interest rate on new deposits held with banks and building societies rose slightly from 0.36% in December to 0.67% in January.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “Households…were cautious in January; the £7.8 billion increase in the value of their liquid assets exceeds the average increase of £4.9 billion in the two years before Covid-19, so the value of “the excess savings” has increased.
He added: “While this caution is likely partly a consequence of Omicron, the sharp decline in consumer confidence this year also suggests that households will seek to maintain a sizable reserve of savings.”