Plastic saves the (Christmas) day, but debt timebomb looms
Shoppers splashed £1.2bn on credit card in November, three times the £400m recorded in October.
According to the Bank of England’s Money and Credit statistics for November, £300m was also spent on other forms of borrowing, which includes personal loans and car finance.
In total for the month, £1.5bn was borrowed, which is higher than the previous six-month average of £1.1bn.
Myron Jobson, senior personal finance analyst at Interactive Investor, said the data suggests Brits “will be suffering from a post-Christmas debt hangover”, and they will need to keep a “watchful eye on their finances to avoid debt spiralling out of control”.
Laura Suter, head of personal finance at AJ Bell, added that December’s figures are likely to see borrowing jump again “as a large chunk of the cost of Christmas is put on plastic”.
She said: “On top of that, we saw a big leap in personal loan costs, with the average rate rising to a five-year high, increasing to almost 8%. It means those who are pushed into borrowing are being hit with higher costs, which will mean more face a debt spiral as they struggle to keep up with repayments.”
Bank account savings deposits down
The statistics revealed households deposited an additional £5.7bn with banks and building societies in November, down on the £6.1bn recorded in October.
Savers also plundered their accounts, withdrawing £5.2bn from non-interest earning accounts and £1.6bn from interest-bearing accounts, while £300m was withdrawn from NS&I products.
This comes at a time that savings rates have reached a 15-year high, off the back of consecutive Bank of England base rate hikes.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said the withdrawals made will have been deposits that savers built up during the pandemic.
She warned: “While it has made an enormous difference to have these savings to fall back on, when it runs dry, it will leave people with incredibly difficult decisions – and no safety net.”
Mortgage approvals fall
The Bank also revealed that the number of mortgages approved for house purchase totalled 46,075 in November, the lowest number since June 2020.
This is down on the 57,875 approvals completed in October, continuing the decline from 74,425 in August and 66,770 in September.
Meanwhile, approvals for remortgaging (which only capture remortgaging with a different lender) fell to 32,500 in November from 51,300 in October, and were below the previous six-month average of 48,100.
However, net borrowing of mortgage debt increased from £3.6bn to £4.4bn. But gross lending decreased from £27.7bn in October to £25.7bn in November. Gross repayments dropped from £25.8bn to £21.6bn
According to Alice Haine, personal finance analyst at Bestinvest, November’s drop in mortgage approvals and remortgaging “is no surprise when you consider the catalogue of challenges facing the property market”.
She said: “Higher borrowing costs, double-digit inflation and falling real wages are impacting affordability for both first-time buyers and those looking to refinance.
“While net mortgage borrowing ticked up slightly, the decline in mortgage approvals – an indicator of future borrowing – followed the sharp drop seen in October when the calamitous effect of Kwasi Kwarteng’s disastrous mini Budget really became evident, with buyers failing affordability checks or struggling to secure a mortgage at all after lenders pulled products at a rapid rate amid soaring borrowing expectations.”