Mortgage Demand Falls Amid Rising Cost of Living as Loans Rise

The amount of money borrowed on new mortgages fell by a third in June, while credit card lending rose by £1bn as households adjusted to rising costs of living.

Mortgage debt fell by a third (33.75%) compared to May and now stands at £5.3bn, although it remains above pre-pandemic levels of £4.3bn.

However, while home loans fell, consumer lending rose, with people taking out an additional £1.8bn, including £1bn on credit cards, according to Bank of England figures.

The amount households are saving has also plummeted, with deposits in savings accounts and NS&I accounts falling to £1.9bn in June, down from £5.6bn in May.

Feeling the pinch: Consumers are feeling the pinch of the current economic climate, data suggests, as private consumer lending rose in June while demand for mortgages fell.

The data suggests that the cost-of-living crisis is driving customers into greater reliance on credit while discouraging the housing market.

Rising inflation is also raising the interest charged on mortgages. The ‘effective’ interest rate (the actual interest rate paid) on new mortgages also increased by 20 basis points (0.20 percent) to 2.15 percent in June.

The existing mortgage rate rose 4 basis points to 2.11 percent as the Bank of England raised interest rates.

There are also signs of a slowdown in the real estate market with home purchase approvals, an indicator of future indebtedness, to 63,700 in June, from 65,700 in May, which is below the pre-pandemic 12-month average through February 2020 of 66,700.

Tomer Aboody, director of property lender MT Finance, says: ‘It is not surprising that mortgage approvals for new purchases fell in June, as some of the heat went out of the market.

“With the prospect of higher mortgage rates on the cards, buyers are taking advantage of the last remaining lower rates before the inevitable spike, and those remortgaging are desperate to secure a term mortgage for as long as possible.”

Additional consumer credit borrowing in June was split between £1bn in credit cards and £0.8bn through other forms of consumer credit (such as car dealer financing).

Home purchase approvals decreased to 63,700 in June, from 65,700 in May, below the pre-pandemic 12-month average through February 2020 of 66,700.

The numbers reflect home purchases that were agreed upon several months ago, suggesting that appetite for new mortgages could wane further.

Jeremy Leaf, North London estate agent and former RICS Residential Chairman, adds: “Although these figures reflect activity from at least a few months ago, it is not surprising that indebtedness is not as strong as it has been.

‘Mortgage approval numbers, which demonstrate the underlying strength of the market, also declined in June to below the 12-month average. However, the lack of inventories and the still relatively low interest rates, despite the rising cost of living, continue to support the market to some extent.’

The figures bring the annual growth rate of all consumer credit to 6.5 percent in June; the highest rate since May 2019 (6.5 percent).

Credit card debt on the rise

The annual growth rate of credit card loans in the year to June was 12.5 percent, while other forms of consumer credit, such as personal loans and auto financing, were 4.1 percent. hundred.

These were the highest rates since November 2005 (12.6%) and March 2020 (5.6%), respectively.

The additional consumer credit borrowing in June was split between £1bn in credit cards and £0.8bn through other forms of consumer credit, such as personal loans.

The additional consumer credit borrowing in June was split between £1bn in credit cards and £0.8bn through other forms of consumer credit, such as personal loans.

Paul Heywood, Equifax’s director of data and analytics, commented: “As prices rise and disposable income shrinks, consumers have to find ways to top up the money flowing into their checking accounts.”

“Higher-income households are increasingly turning to their savings, reversing a trend seen during the pandemic, while lower-income households are turning to the lending industry to help them weather the storm.

“Credit applications are now back to pre-pandemic levels, and as the cost-of-living crisis continues to unfold, this demand is going nowhere.”

Credit is also getting more expensive. Rates on new personal loans to individuals rose 0.022% to 6.71% in June, but remained just below the pre-pandemic level of 6.9%.

The effective rate on interest-bearing credit cards increased 19 basis points (0.19%) to 18.56%, standing 1 basis point above the February 2020 level.

Household saving plummets by £3.7bn

Combined household deposits in savings and NS&I accounts were £1.9bn in June, down from £5.6bn in May and below the monthly net average of £4.7bn in the 12 months prior to the pandemic.

increasing rates

Businesses have also been affected by rate hikes, with new business mortgages rising 10% in June.

The average floating mortgage rate for a business is now 2.44%

The average fixed mortgage rate for a new business is now 2.14%

The average general mortgage rate for a new business is now 2.6%

Rosie Hooper, Quilter’s Certified Financial Planner, said: ‘New money and credit statistics from the Bank of England show that the number of people saving has plummeted while consumer credit has risen. These are troubling numbers that illustrate the strain the nation’s finances are currently under.

‘The cost-of-living crisis is clearly starting to hamper people’s ability to save money for the future as it gets sucked into rising prices.

‘The increase in indebtedness is really cause for concern, as while it is still hot, the worst of the energy crisis is not in full force.

“As the nights approach and temperatures drop, things could get significantly worse. Credit cards have some of the highest interest rates and if the loan is to pay the current higher cost of living or pay essential bills, then people could quickly fall into an unmanageable spiral of debt.’

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