Household budgets continue to be stretched as savings slow

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, comments on publication of the Bank of England Money and Credit data for December 2022, showing household budgets continue to be stretched as savings slow.

Key points from publication:

• • Net borrowing of mortgage debt by individuals decreased from £4.3 billion to £3.2 billion in December.
  • Mortgage approvals for house purchases decreased to 35,600 in December from 46,200 in November.
  • This is the lowest since May 2020 and the fourth consecutive monthly decrease.
  • Consumers borrowed an additional £0.5 billion in consumer credit, compared with £1.5 billion borrowed in November.
  • Credit card repayments of £0.5bn were more than offset by £1.0 billion of borrowing through other forms of consumer credit.
  • Households deposited an additional £3.9 billion with banks and building societies in December. This compares to £5.9bn in November.
  • Net flows into time deposits decreased to £6.9 billion in December, from £10.4 billion in November.

Helen Morrissey says:

“Storm clouds continue to gather over household finances as the cost-of-living crisis continues to stretch household budgets to their very limits -and in many cases beyond.

“The hard-won savings buffers accumulated during the pandemic are running low meaning more households will need to resort to credit, and the once buoyant housing market appears to have deflated with mortgage approvals dipping for the fourth successive month.

“Some households are still able to save but the amount they can afford to put away is on the decline in a sure sign that the cost-of-living crisis is affecting pretty much everyone.”

Mortgages:

“The property market has been strong for so long but a heady mix of the cost-of-living crisis, rising rates and a looming recession means it is rapidly running out of steam.

“Mortgage approvals are down to their lowest since May 2020 as many people decide to put off that dream house purchase -either because they were scared off by the mayhem of last year’s mini-budget or their budgets no longer stretch as far as they did.

“Predictions of house price falls in the coming months are also likely to be a factor as would-be buyers decide to wait and see if they can snap up that home for less money and would-be sellers decide to wait that bit longer before putting their home up for sale.”

Savings and credit:

“The pandemic savings boom is rapidly running out of steam – we are still saving, but not as much as budgets remain tightly squeezed and Christmas will have added an extra burden to many people’s finances.

“There are still signs that people are on the hunt for the best savings rates with a further £6.9bn going into fixed term deals in December but this is well down on the £10.4bn that went in in November.

“This could be a sign of a bit of a stampede to capture the best rates beginning to subside -it could also be the case that people are less willing to tie up their money in case they need to access it in a hurry.

“The £0.5bn borrowed on credit cards was well down on the £1.5bn recorded for November but it’s still a clear sign people are struggling to make ends meet.

“November and December are always going to be tough as Christmas looms but there are real signs of financial stress as credit card repayments are outstripped by borrowing.

“The longer this continues the more likely people are to end up in severe financial difficulty.”

Kindly shared by Hargreaves Lansdown

Main article photo courtesy of Pixabay