Mortgage approvals down, savings plunge and credit increases

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, comments on the Bank of England’s Money and Credit Report, showing mortgage approvals down, savings plunge and credit increases.

Key points from the report:
  • Net borrowing of mortgage debt decreased to £5.3 billion in June, down from £8.0 billion in May. However, it remains above the 12-month pre-pandemic average of £4.3 billion.
  • Approvals for house purchases fell from 65,700 to 63,700 in June. This is below the 12-month pre-pandemic average.
  • Individuals borrowed an additional £1.8 billion in consumer credit in June. This follows £0.9 billion of borrowing in May.
  • This was split between £1.0 billion on credit cards, and £0.8 billion through other forms of consumer credit such as car dealership finance and personal loans.
  • Households deposited an additional £1.5 billion with banks and building societies in June, compared to £5.2 billion in May.
Helen Morrissey says:

“There are turbulent times ahead as mortgage activity drops, credit card lending surges and our savings plunge.

“The pandemic fuelled our savings habits and made us less likely to flash the plastic while our need for more space kept the property market running red hot.

“However, this is now starting to unravel as the cost-of-living crisis has laid waste to our savings and we are increasingly turning to credit to meet our day-to-day costs.

“It’s a sure-fire recipe for hard times ahead.”

Mortgage borrowing:

“The so-called race for space fuelled the mortgage market during the pandemic but there are signs it is starting to cool. Net mortgage borrowing plunged from £8bn in May to 5.3bn in June. This is still well above the pre-pandemic 12-month average but a clear sign of the direction the market is headed.

“Added to this, approvals for house purchases fell below the pre-pandemic 12-month average as the cost of living and increasing interest rates make people think twice about making a bid for a new home.

“It adds to the growing body of data pointing towards a slowdown in the coming months as homes that were once snapped up take longer to sell and sellers become more likely to tweak asking prices.”

Consumer credit and savings:

“The amount we are borrowing continues to rise as surging inflation stokes our costs and erodes our pandemic savings. Of the extra £1.8bn in credit we took out in June around £1bn of this was on credit cards with the remainder on other finances such as personal loans and car finance.

“The concern is that much of this is being used to help people meet their day-to-day costs leaving them at risk of running up debt they may struggle to pay back. Rising interest rates will add an extra burden that is only likely to increase with the prospect of more interest rate hikes in the coming months.

“We are continuing to save where we can though. Around £1.5bn was deposited in bank and building societies with an additional £0.4bn put into National Savings and Investment accounts.

“However, this is well below not only last month’s total of £5.2bn but also the pre-pandemic average of £4.7bn so there is real cause for concern. The less we have in liquid savings then the less able we are to respond to unexpected bills or increasing costs and this is leaving us more reliant on credit.

“One glimmer of hope is that after a prolonged time of low rates there are signs more banks and building societies are increasing the interest rates on their savings accounts so people can get a bit more for their money if they are willing to shop around for the best deal.”


Kindly shared by Hargreaves Lansdown

Main article photo courtesy of Pixabay