Household credit card borrowing rose in June at the fastest annual rate since 2005, while the amount of money deposited in accounts fell.
Commentators said the figures, released by the Bank of England, reflected the challenges faced by households struggling with the soaring cost of living.
Overall consumer credit, which includes credit card borrowing, overdrafts, personal loans and auto financing, grew 6.5% a year in June, the fastest rate since that a 6.5% increase was also recorded in May 2019.
In this context, the annual growth rate of credit card loans was 12.5%.
This is the highest rate since a 12.6% increase was recorded in November 2005, the Bank of England said.
Credit applications are now back to pre-pandemic levels
Paul Heywood, Equifax
The combined net flow of money into both deposits at banks and building societies as well as NS&I accounts in June was £1.9bn.
This was around a third of the total amount deposited in May, when the figure was £5.6bn.
It was also well below an average of £4.7bn in the 12-month pre-pandemic period to February 2020, according to figures from the Bank’s Money and Credit report.
Paul Heywood, director of data and analytics at credit reporting firm Equifax, said: “High-income households are increasingly drawing on their savings, reversing a trend seen during the pandemic, while those on low incomes are turning to the credit industry to help them ride out the storm.
“Credit applications are now back to pre-pandemic levels and as the cost of living crisis continues to spread, this demand is going nowhere.
“Lenders will need to find ways to respond to this demand responsibly and comprehensively, and should, where possible, use data to combat the urge to retreat into the core market segment.”
Rising consumer borrowing shows how tough the cost of living crisis is getting
Alice Haine, Bestinvest
Karim Haji, Head of UK Financial Services at KPMG, said: “The UK’s major banks have not reported any major deterioration in credit quality this week, but they are aware of the need to support the most vulnerable customers. vulnerable throughout what will be an extremely difficult second half. the year.
“Meanwhile, reports from other sectors of the economy, such as supermarkets, indicate that people are moderating their spending as much as they can to cope with rising costs.”
Alice Haine, personal finance analyst at Bestinvest, said: “The rise in consumer borrowing shows how difficult the cost of living crisis is getting for people across the country, as soaring inflation , rising interest rates and falling real wages are hitting disposable incomes. hard.”
She continued: “With Liz Truss and Rishi Sunak battling to become the next Prime Minister, that means any further respite from new fiscal policies is still a long way off, leaving households to sweat as the cost of living crisis heats up. . further away.
A package of cost-of-living aid is being distributed to households over the next few months, including a £400 cut on energy bills and targeted support for particularly vulnerable households.
Households may already be drawing on their savings to finance their spending
Nitesh Patel, Yorkshire Building Society
Mortgage approvals for home purchases and mortgage renewals fell month over month in June.
The number of mortgage approvals granted to homebuyers fell to 63,700 in June from 65,700 in May, which is below the pre-pandemic 12-month average through February 2020 of 66,700.
Tomer Aboody, director of property lender MT Finance, said: “With the prospect of higher mortgage rates on the cards, buyers are taking advantage of the last remaining lower rates before the inevitable spike.”
Remortgage approvals (which only take into account remortgages with another lender) fell to 44,000 in June from 47,200 in May.
Nitesh Patel, strategic economist at the Yorkshire Building Society, said: “These latest figures are a far cry from the past two years, when mortgage volumes rose rapidly, household saving was high and borrowing low.
“With consumer price inflation rising at the fastest rate in 40 years and real income growth falling sharply, it appears that households are already drawing on savings to fund spending.
“With real profits expected to decline further this year and borrowing costs continuing to rise, we should see consumer spending slow and housing market activity slow, and in particular house price growth subside – which would be welcomed by potential first-time buyers.”