Household credit card borrowing rose at the fastest annual rate since 2005 in April, according to Bank of England figures – just as a series of price hikes began to hit.
The annual growth rate of all consumer credit, which includes credit card borrowing, overdrafts, personal loans and auto financing, fell from 5.2% in March to 5.7% in april. This is the highest rate since February 2020.
In total, the annual growth rate of credit card borrowing was 11.6% – marking the highest rate since November 2005 – according to the Money and Credit report.
An increase in the energy price cap, council tax increases and a 1.25 percentage point increase in National Insurance (NI) to pay for health and social care were among the costs highest in April.
Last week, Chancellor Rishi Sunak announced a package of support measures to help those facing the cost of living, including help for those who are particularly vulnerable.
Thomas Pugh, economist at RSM UK, said: “The latest figures from Money and Credit suggest that consumers are borrowing more and more to protect their way of life from soaring inflation.”
Alice Haine, personal finance analyst at investment platform Bestinvest, said: “The fear is that with inflation at 9% – a 40-year high – and energy and fuel costs soaring, the situation will only get worse as the cost of living crisis deepens.”
She added: ‘The risk is that those who go into debt now will create a host of problems for themselves later when costs rise even more.’
Ms Haine continued: “To put the situation in perspective, however, it is important to note that card borrowing is rising from a true low and this is more of a slight uptrend than of a sudden peak.
“Furthermore, many households are still clinging to excess savings accumulated during the pandemic, so the situation is not yet at crisis point.”
Karim Haji, head of financial services at KPMG UK, said: “Although in April the new energy price cap came into effect, most households would not have received their revised utility bills. before the end of the month, with a real impact on expenses. more likely to be seen in May.
“Given the harshness of some of the data here – such as the sharp increases in consumer borrowing – banks will have welcomed the measures announced by the Chancellor last week.”
People borrowed a further £1.4bn in consumer credit in April, following £1.3bn borrowing in March.
It was the third month in a row that borrowing was above average in the 12 months to February 2020, by £1.0 billion, the Bank said.
Households also increased deposits in their accounts in April.
The combined net flow into bank and building society accounts, as well as National Savings & Investments (NS&I) accounts, in April was £6.3bn, compared to an average monthly net flow of £5.5 billion pounds in the 12 months to February 2020.
Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said: “Real spending is expected to rise slowly in the second half of the year as real incomes begin to pick up – partly thanks to Mr Sunak’s interventions last week.”
The number of mortgage approvals granted to homebuyers meanwhile fell to 66,000 in April from 69,500 in March.
This figure was slightly lower than the pre-pandemic 12-month average to February 2020 of 66,700.
Remortgage approvals, which are only for home loans with another lender, also fell, to 47,800 in April.
This figure was also lower than the pre-pandemic 12-month average to February 2020 of 49,500.
Mr Haji added: “In the case of consumer and mortgage loans, banks are monitoring the data even more closely than usual for early signs of distress, to protect themselves and households.”
Housing market reports have indicated that property values have hit a series of record highs in recent months, despite pressure on household finances.
A lack of available properties and mortgage rates still low by long-term standards have reportedly helped push prices higher – although there have also been signs the market could ease, with more sellers offering discount.
Mark Harris, managing director of mortgage broker SPF Private Clients, said: “There are still signs of strong activity in the market, although some of the heat has come out of it, and mortgage brokers remain exceptionally busy so that borrowers are worried about rising rates.
“It doesn’t help that lenders continue to pull short-term products.”
He added: “Borrowers continue to favor longer-term solutions in order to protect themselves as much as possible, especially since five-year products are priced so favorably compared to their two-year counterparts.”
Hina Bhudia, partner at Knight Frank Finance, said: “Activity among buyers is declining as cost of living compression shrinks the pool of buyers.
“Rates on some products have doubled in the past 12 months and there is a real sense of urgency among many borrowers who feel they need to act quickly or reassess what they can afford.
“Remortgage demand remains very strong as borrowers seek to beat rising interest rates.
“Some lenders allow you to reserve rates up to nine months in advance, so thousands of borrowers are moving forward with decisions that under normal circumstances would have been put off.
“Lenders are struggling to stay on top of the flow of new applications and are retiring and reassessing product lines to maintain service levels.”
Andrew Montlake, managing director of mortgage broker Coreco, said: “Remortgages, contrary to what this data suggests, are exploding as people seek to lock in to the lowest rates available before they rise. any further.
“Perhaps the fact that this data only shows remortgages to other lenders suggests that people are increasingly being forced to remortgage with existing lenders due to affordability concerns.”
Martin Beck, chief economic adviser at the EY Item Club, said activity in the housing market is expected to continue to slow through 2022.
He added: “But with the impact of rising interest rates only gradually being felt due to the high share of outstanding fixed-rate mortgages of two years or more, a soft landing seems likely unless the labor market outlook begins to deteriorate.”