Consumer borrowing soared to a five-year high in June as budgets continued to be weighed down by the prolonged cost-of-living crisis. While there is an element of people resorting to borrowing to bridge the gap between income and expenses with the cost of essential expenses such as food, energy and housing remaining elevated, a closer look at the figures suggests that all is not as it seems.
The amount of expenses put on the plastic remained stable at £600 million in June, but other forms of consumer credit like car dealership finance and personal loans increased significantly from £500m in May to £1bn in June.
The BoE doesn’t offer an exact breakdown of the credit products that come under the ‘personal loan’ banner, but any uptick in credit products, like car dealership finance, which can’t go towards footing the cost of everyday essentials, underlines the polarised cost-of-living experiences between the ‘haves’ and ‘have nots’.
In any case, while borrowing may provide temporary relief, it can also exacerbate financial challenges if not used wisely. If you are struggling with debt, it is worth consulting a debt advice charity such as StepChange or Turn2Us. They will go through all of your options.
Mortgages
The increase in mortgage lending and mortgage approvals shows there remains a healthy appetite among buyers to get sales done despite the well documented affordability pressures. Heavy negotiations are likely to be at play here. Property portal Zoopla recently reported that more buyers are negotiating discounts of 5% or more than at any time in the last five years.
Remortgage activity also edged higher – although the dataset only captures remortgaging with a different lender.
The uptick in remortgage approvals could suggest that homeowners were keen to get deals on the table, which usually valid for up to six months, as storm clouds brewed over the mortgage marketplace.
It could be a sign of things to come, with mortgage deals ticking lower amid expectations that interest rates won’t rise as high as feared following the lower than expected fall in inflation in June.
The fact remains that recent housing market activity pales in comparison with the summer seasons of yesteryear because of the housing affordability squeeze. With mortgage rates likely to remain high for the foreseeable future, affordability is the key challenge facing borrowers.
Myron Jobson is senior personal finance analyst at interactive investor
