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Bank of England consumer credit - July 2023

ended 29. August 2023

Last month, the Bank of England revealed that, in June, net borrowing of consumer credit by individuals rose to £1.7 billion, the highest level since April 2018. In short, lots more people, likely due to the cost of living crisis and rising mortgage payments, were taking on more unsecured debt, mostly in the form of personal loans. With this in mind, a few Qs:

  • Are you seeing growing signs of financial distress among your clients, e.g. taking out loans to keep their heads above water?
  • Are second charges on the rise as people look to consolidate the mountain of debt they racked up when the interest rate sun was shining?
  • To what extent are unsecured debts and borrowing on credit cards, etc, impacting affordability now that rates are significantly higher?
  • Recent reports from the Insolvency Service have highlighted that more people are getting into serious financial difficulty. Do you expect this trend to continue?

5 responses from the Newspage community

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Darryl Dhoffer
Founder at The Mortgage Geezer
Post-COVID lockdowns, we saw a higher influx of clients with higher levels of unsecured debts which continued throughout most of 2022, where consumers had to bear the brunt of high inflation costs, affecting consumer spending including Utility Bills, Petrol Prices and general living expenses, and the first quarter of 2023, very much looking at consolidating these debts by way of remortgage or secured loans. From the clients I speak to now, unsecured debts in the majority of cases have increased again, even with major changes in reducing spending habits. In July 2023 The Money Charity issued a money stats report and highlighted some scary numbers - 23% of private renters are in serious financial difficulties, along with 13% of mortgage owners, and 5% of outright homeowners. Consumer credit debt outstanding end of May 2023 increased from £213.9 billion, an increase of £809 million from the previous month, and £11.5 billion more than in May 2022 - sadly, I expect this to continue.
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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
As the Tories and the Bank of England continue their assault on the health of the UK economy, those struggling to survive are having to turn to unsecured credit to put food on the table. With taxes, energy, food and housing costs all significantly higher than 18 months ago and wages not keeping pace with those hikes, a stretched population on low wages will need to fund basics like food, clothing and heating. With interest rates set to stay high into 2024 and a government imposing the highest tax burden for 75 years and unwilling to help those most vulnerable, there is a depressing inevitability where this will end. A significant recession is on the horizon that will lead to a swathe of job cuts and mass unemployment and home repossessions and homelessness.
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Riz Malik
Independent Financial Adviser at R3 Wealth
An unnoticed threat looming on the horizon is the reduction in credit availability. Recently, I observed a credit card company informing a customer that their £14,000 credit limit was being reduced to £1,000 because of non-utilisation. The same pattern has been emerging with overdraft facilities. This pattern mirrors what was witnessed during the early days of the credit crunch. Individuals relying on credit to manage their day-to-day finances may face severe challenges especially when that credit needs to be repaid.
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Kundan Bhaduri
Property Developer and Portfolio Landlord at The Kushman Group
The surge in consumer borrowing has raised major concerns about a potential increase in problem debt. As households struggle to cope with rising living costs, there is a risk that more people will fall into serious financial difficulty. This situation is exacerbated by the ongoing cost of living crisis, which has already strained the finances of millions. The BoE's mindless effort to combat inflation by raising interest rates is having a profound impact on the financial well-being of households. The challenge now is to strike a balance between curbing inflation and preventing a surge in problem debt that will have long-term economic implications for millions. Despite the rising interest rates making debt and mortgages more expensive, we have seen an unexpected increase in mortgage approvals. Homeowners are looking to secure new deals before the effects of interest rate hikes fully materialise.
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Alastair Hoyne
CEO, Finanze Capital at Finanze Capital
The recent surge in consumer credit borrowing, is concerning but not unexpected. Low interest and easy borrowing have for a long time been the norm. It was only a matter of time before there were negative repercussions. The cost-of-living crisis and rising mortgage payments has begun to bite hard for many. Against this backdrop we are seeing a noticeable increase in people looking for affordable solutions. Interestingly, a rise in re-mortgages and mortgaging unencumbered properties is noteworthy as people aim to consolidate pre-existing debts from periods of more favourable interest rates or look to acquire income-generating assets to bolster finances. Reports from the Insolvency Service highlighting an increase in severe financial difficulties are disheartening but unsurprising. If prevailing economic conditions persist, this distressing trend looks set to continue for many.