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UK Finance 'Household Finance Review' Q4 2022

ended 09. March 2023

UK Finance has just published its Q4 Household Finance Review report. You can read the full report here, but key points below for ease. Any thoughts, send them across ASAP as this story is breaking.

  • Despite continuing weak consumer confidence, overall spending on credit and debit cards held up. But changes in patterns of spending within this indicate a shift away from luxuries towards essentials and cheaper options, as cost-of-living pressures bear down.
  • Personal loan borrowing fell sharply, suggesting the “make hay whilst the sun shines” effects seen in first half of 2022 have come to an end.
  • Borrowing for house purchase remained broadly on trend with pre-Covid levels but weakness is expected ahead. Amidst cost-of- living and interest rate increases, more borrowers have been choosing longer mortgage terms to reduce initial payments and satisfy affordability requirements. Although borrowing volumes are holding up for now, there is a limit to the extent that these factors can continue to support market activity.
  • Refinancing remains strong by virtue of strong numbers reaching the end of their deal rates, but prospects are challenging for the 1.8 million fixed rate loans set to mature through 2023, which may drive business further into the internal (non-affordability tested) Product Transfer market.
  • Unsecured debt stress indicators were stable, but headline mortgage arrears saw a modest increase as cost-of-living and interest rate rises begin to feed through, although numbers were down compared to the end of 2021. Whilst we expect further increases in arrears through 2023, in the absence of unexpected adverse shocks we expect numbers to peak at relatively low levels, and well below previous cycle highs.

2 responses from the Newspage community

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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
Spending on credit doesn't translate into confidence in the economy, it means people are desperate and have no other means of feeding themselves. This amount of personal credit will turn bad shortly, and you can see high street banks predicting this by holding more bad loan provisions on their books.

We haven't seen the worst of it, as the central bank is still obstinately likely to increase rates further, piling on more pressure. This will, in turn, lead to more negative economic data and rising unemployment. Debt will spiral into the Spring, as will defaults.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
As the report confirms house purchase transaction volumes are down, but mortgage brokers remain busy with clients needing help and support when reviewing deals that are ending. These reviews are generating lots of conversations around extending terms to control payments, as well as decisions between the benefits of a full remortgage to a new lender or a product transfer with their current lender. One issue I am seeing with younger borrowers is the belief that the current interest rates are high, and they only want to look at short-term deals, in the belief that interest rates will "fall back to normal" in a few years. However, looking at historic interest rates over the past twenty or so years the current rates are more in line with historic trends, it's the last decade of ultra-low rates that is the oddity.