Consumer Credit Borrowing Sees a Resurgence as Mortgage Lending Slows

The latest data from the Bank of England reveals a significant increase in consumer credit borrowing, with households borrowing £1.5 billion in May. This marks a substantial rise from the £800 million borrowed in April. The surge in borrowing is attributed to increased spending on credit cards, personal loans, and car finance.

Consumer credit borrowing on the rise

Meanwhile, mortgage approvals for house purchases have dipped to 60,000 in May, down from 60,800 in April. This decline is indicative of a cautious approach to borrowing, with many potential buyers delaying their decisions due to lingering affordability concerns.

“Inflation may be easing, but persistently high borrowing costs are still making it hard for buyers to secure the homes they want,” said Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners.

The dip in mortgage lending is also attributed to political uncertainty ahead of the General Election, with many potential buyers choosing to wait until the outcome is clear before making a decision.

Mortgage lending slows down

On the other hand, consumer borrowing has seen a significant increase, with some experts suggesting that people are spending more ahead of the summer holidays. However, others have cautioned against taking on more debt at a time when interest rates remain high.

“Even if the Bank of England opts to cut the base rate at the next meeting, a likely 25 basis point cut would still leave the base rate above its long-run level,” said Karim Haji, global head of UK financial services at KPMG.

The amount of money households deposited with banks and building societies also grew by £5.3 billion in May, driven by an additional £4.2 billion flowing into ISA accounts.

Savings on the rise

As the cost of living remains high, it is essential for lenders to exercise caution and monitor borrowing trends closely. With interest rates expected to remain high for the foreseeable future, it is crucial for consumers to be mindful of their debt levels and make informed financial decisions.