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Credit card borrowing is at 16 year high

Vicky Parry 1st Jun 2022 No Comments

Reading Time: 3 minutes

The Bank of England’s monthly Money and Credit statistical release has shown a huge spike in credit card borrowing over the last month. They also showed a huge decrease in mortgage borrowing (nearly 2 billion!). It is highly plausible that these figures are representative of general financial fear.

MoneyMagpie Jasmine Birtles comments, “It’s not a surprise that people are borrowing more to spend. As prices rise, people are having to dip into savings to buy essentials day-to-day. It makes sense that many others will use credit to do it. This is the thin end of the wedge, though. When we see people using credit cards more and using them for essentials, we know there is a serious problem with the economy.”

The Findings.

Net borrowing of mortgage debt by individuals decreased to £4.1 billion in April, down from £6.4 billion in March. Mortgage approvals for house purchases also decreased to 66,000 in April from 69,500 in March. Both measures are slightly below their 12-month pre-pandemic averages up to February 2020.
Consumers borrowed an additional £1.4 billion in consumer credit, on net, of which £0.7 billion was new lending on credit cards.
Large non-financial businesses’ borrowing from banks rose to £2.7 billion in April from £1.8 billion in March, while small and medium sized businesses repaid £0.5 billion of bank loans. Private non-financial companies (PNFCs) redeemed £1.9 billion in net finance from capital markets.
The net flow of sterling money (known as M4ex) decreased to £1.5 billion in April compared with £24.4 billion in March. Households’ holdings of money saw net flows of £5.7 billion in April, compared with £6.6 billion in March.
The net flow of sterling lending to private sector or companies (known as M4Lex) decreased to -£3.4 billion in April, compared to £21.1 billion in March.

Why has this happened?

The short of it is – because people can’t afford to live.

Laura Suter, head of personal finance at AJ Bell comments, “Brits borrowed another £1.4bn in April to help keep themselves afloat during the cost of living crisis. It marks the third consecutive month where borrowing has been higher than £1bn. Another £700m was borrowed on credit cards in April, an 11.6% rise in consumer credit – its highest level in more than 16 years, since November 2005. As a nation we’ve now put more than £3bn on credit cards in the past three months, and another £1.6bn on other forms of credit, including personal loans and car finance.

Suter says “What the figures show is a divided nation, with many households still managing to save cash despite prices rising around them. A total of £5.7bn was saved by households in April and another £600m put with NS&I, which collectively is nearly 15% higher than the average in pre-pandemic times. It’s a far cry from the bumper savings the nation was making during lockdown, but with the prospect of tougher times ahead lots of households have tightened their belts and saved some cash in their emergency funds.”

Can we find any solace in these figure?

A very small positive is that for those borrowing money, the interest rates haven’t shot up, despite the Bank of England base rate rising. Average interest rates on personal loans and credit cards rose in April but are still below pre-pandemic levels. In reality, those with the lowest credit ratings will be paying far higher rates for their borrowing.

Jasmine Birtles, however, can see the red flag and says, “Anyone who is finding themselves using credit to buy everyday goods need to see it as a warning about their finances. Go directly to one of the free debt advice agencies to get help, as the longer this goes on, the more expensive it will be if you’re not able to pay off the credit card balance in full.” Charity Turn2Us offer lots of help and advice to people in this situation here.

We have a full guide on how to deal with creditors when you can’t pay the bills here.