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Outstanding balances on credit card accounts grow by 9.5% - UK Finance

ended 18. July 2023

This morning, UK Finance published data showing, among other things, that “outstanding balances on credit card accounts have grown by 9.5 per cent over the twelve months to April”. You can see the full report >> here <<. UK newswire, Newspage, asked financial services experts if they are seeing an overreliance on credit cards in the current climate and how it could impact people's mortgage borrowing. Their views can be seen below.

4 responses from the Newspage community

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Michelle Lawson
Director at Lawson Financial
Credit cards, like all debt when used responsibly, can be a good thing, as there are multiple reward-based cards that give benefits, for example. That said, I am seeing a lot of people who do use credit cards to fund lifestyles. I have seen applicants with more than £50k on credit card balances alone, without loans and car finance. Some people then go on to rely on consolidating debt into mortgages, which is all well in principle when rates are low. However, with rising interest rates, this will be less attractive and could leave people struggling to service their debt. The levels of unsecured debt with a lot of applicants are quite frightening as it is so much easier to obtain in comparison to mortgages and, in some circumstances, just a click away in their banking app.
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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
Credit card balances grew by just under 10% in the year to April, and that's before the effect of recent interest rate rises have been felt. With people struggling with colossal energy and food bills, the economy will really suffer when homeowners start coming off their fixed rates. Then the pain will really hit home. I expect unsecured credit to rise sharply over the next 12 months as the UK spirals into a debt crisis and sharp recession.
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Stephen Perkins
Managing Director at Yellow Brick Mortgages
The increased reliance on credit cards is not surprising given that households have seen every outgoing increase dramatically during the past 12 months, with incomes far from keeping pace. The majority of UK households lived close to their means before the cost of living squeeze, so now are living on credit in the hope of coming out the other side. Many will think of consolidating this debt via a remortgage or paying it down when finances allow, but often this is not possible. Mortgage affordability, which considers general outgoings such as utilities and food, is already reduced, so adding larger credit card balances could see a lot of borrowers being unable to raise the size of mortgage they want when they next need to review their borrowing.
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Justin Moy
Managing Director at EHF Mortgages
Traditionally a good percentage of credit card debt has been repaid via a remortgage, replacing expensive debt with a much cheaper mortgage payment, and the cycle then starts again. This is one of the reasons so many borrowers like a short-term deal. With the recent increase in rates, the reduction in affordability, and the knock-on popularity of Product Transfers, that whole process of refinancing has come to a sudden halt, and the credit card balances won't be disappearing soon. It's likely that the Bank of Mum and Dad will need to intervene, protecting their original deposit support by reducing personal debt and credit card balances, allowing borrowers to manage to pay the higher mortgage payments.