Household credit card borrowing rose to its highest level in more than 16 years in April, suggesting more Britons are turning to debt as the cost-of-living crisis bites.
Britons borrowed a total of £1.4billion on credit cards, overdrafts, personal loans and car finance in April, marking the third consecutive month where borrowing has been higher than £1billion, fresh Bank of England data shows.
Of the total borrowing, £700million was taken out on credit cards. This represented an annual rise of 11.6 per cent – the highest level since November 2005.
Cost of living crunch: The latest money and credit figures suggest Britons are borrowing more to protect their lifestyles from the surge in inflation
In contrast net mortgage borrowing fell 36 per cent, from £6.4billion in March to £4.1billion in April, suggesting the British property market may be cooling.
The BoE figures also show mortgage approvals for house purchases decreased from 69,500 in March to 66,000 in April.
Meanwhile, the annual growth rate for all consumer credit, including borrowing on credit cards, overdrafts, personal loans and car finance, rose from 5.4 per cent to 5.7 per cent.
However, whilst credit card debt is soaring, many Britons are still managing to squirrel cash away.
A total of £5.7billion was saved into banks and building societies in April, along with another £600m with state-owned savings bank NS&I.
Collectively this was nearly 15 per cent higher than the pre-pandemic average.
Laura Suter, head of personal finance at investment platform AJ Bell said: ‘As a nation we’ve now put more than £3billion on credit cards in the past three months, and another £1.6billion on other forms of credit, including personal loans and car finance.
‘What the figures show is a divided nation, with many households still managing to save cash despite prices rising around them.
‘Although it’s a far cry from the bumper savings the nation was making during lockdown, with the prospect of tougher times ahead lots of households have tightened their belts and saved some cash in their emergency funds.’
Are we seeing a slowdown in the property market?
Both the figures for mortgage borrowing and approvals are now slightly below the 12-month pre-pandemic averages up to February 2020.
The slowdown comes at a time when mortgage rates are rising and consumer price inflation is at a 40-year high of 9 per cent.
The cheapest fixed mortgage rates have more than doubled since October last year, according to analysis by mortgage broker L&C Mortgages.
Data shows the cheapest average two-year and five-year fixed rates are now well above 2 per cent at 2.36 per cent and 2.46 per cent, respectively, having risen from the historic lows of 0.89 per cent and 1.05 per cent, respectively, last October.
Hina Bhudia, a partner at Knight Frank Finance said: ‘Activity among purchasers is ebbing as the cost of living squeeze shrinks the pool of buyers.
‘Rates on certain products have doubled in the past twelve months and there is a real sense of urgency among many borrowers who sense they must act soon or reassess what they can afford.’
Jeremy Leaf, north London estate agent and a former RICS residential chairman adds: ‘Mortgage approvals are always a good lead indicator of housing market direction.
‘This latest reduction confirms what we have been seeing at the sharp end over the past few months – successive monthly increases in the cost of living as well as interest rates are compromising confidence to take on additional debt and having an inevitable knock-on effect on price growth.’
Mortgage approvals for moves in the next few months fell to 66,000 in April – which is below the pre-pandemic average of 66,700.
Whilst this represents the third consecutive monthly decline in the number of mortgage approvals, concerns of an ensuing housing crash remain far-fetched, according to those within the industry.
Almas Uddin, founding director of Revolution Brokers said: ‘The approval levels may well cause the alarm bells to start ringing across the UK property market, particularly one as sharp as we’ve seen today.
‘But it’s fair to say that this homebuyer heatwave already ended last year, when mortgage approvals peaked at almost 86,000 in May.
‘Since then we’ve seen the market settle at around 70,000 approvals per month, give or take, and these latest figures are far from a surprise, bringing us back to pre-pandemic market conditions.
‘So there’s certainly no cause to run for the hills in fear of a property market crash in this respect.’
Best mortgage rates and how to find them
Finding a mortgage can seem confusing due to the huge range of deals on offer.
This is Money has partnered with independent fee-free mortgage broker L&C, to help you find the right home loan.
Our mortgage calculator can let you filter deals to see which ones suit your home’s value and level of deposit.
You can also compare different mortgage fixed rate lengths, from two-year fixes, to five-year fixes and even ten-year fixes, with monthly and total costs shown.
Use the tool at the link below to compare the best deals, factoring in both fees and rates.
> Compare the best mortgage deals available now