Debt levels rise and savings being raided as cost-of-living continues to bite
Borrowing on credit rose in August to £1.6bn, up from £1.3bn the month before, official figures show.
The increase was largely due to a rise in other forms of consumer credit, such as borrowing on car finance deals and personal loans, which rose to £1bn in August, from £0.6bn in July.
The amount being taken out on credit cards also rose to £0.7bn while the amount of money being taken out of savings accounts rose for the first time in two months, according to the latest money and credit data from the Bank of England (BoE).
Mortgage debt also rose, for the fourth month in a row, to £1.2bn in August, up from £0.2bn in July. While mortgage approvals for house purchases fell from 49,500 in July to 45,400 in August, the lowest level in six months.
The amount of interest charged on overdrafts rose 44 basis points to 22.14% on average in August, after dropping seven basis points in July.
There was also a 46-basis point increase on rates of personal loans, to an average of 9.07% and the average rate on credit cards was 20.77% last month.
Alice Haine, personal finance analyst at Bestinvest, said: “Consumer borrowing increased to £1.6bn in August from July’s £1.3bn, reflecting a period when many may have shelled out for expensive summer holidays or activities to keep children entertained during the school holiday.
“With new personal loans significantly more expensive than during the lengthy era of ultra-low interest rates, big-ticket purchases such as a car upgrade, house or garden renovation require careful consideration to ensure they are truly affordable.
“Acting quickly to snap up the best deals, where no interest is applied for a lengthy set period, will save borrowers substantial sums. Just ensure the debt is repaid in full during the interest-free period otherwise the cardholder rolls onto the representative APR.”
‘Less disposable income to save’
Savers withdrew £6.4bn from accounts paying interest and £6bn from accounts paying no interest last month. A total of £8.3bn was paid into fixed-rate savings accounts, down from £10.3bn in July. Overall households withdrew £0.3bn in August, following two consecutive months of net deposits.
There was £0.4bn paid into National Savings and Investments (NS&I), largely due to a rise in the interest rate paid on these Government accounts.
Thanks to successive Bank of England (BoE) rate rises, fixed-rate accounts have risen 18 basis points to 5.12% on average and easy-access rates have risen to 1.83% on average.
Myron Jobson, senior personal finance analyst for interactive investor, said: “The uptick in withdrawals from savings accounts in August is indicative of the fact that many households are still allocating a sizeable chunk of their income towards covering basics necessities – with the soaring cost of housing, be it mortgage repayments or rent, a particular pain point. This leaves them with less disposable income to save.
“The NS&I fared much better, with an extra £400 million flowing into its savings accounts. It shows that the UK government backed bank’s recent programme of rate hikes across its suite of saving products is paying dividends in a big way.”
‘Savers are still winners’
Haine added: “Savers are still winners in this high interest rate era, enjoying significantly better rates on their savings pots over the course of this year, though of course most accounts still deliver a negative return once Consumer Prices Inflation is factored in.
“How long the top deals will stick around though is another matter. While average savings rates on easy access, notice and some Cash ISAs are now at their highest levels since 2008, according to Moneyfacts, this data came out before the BoE paused its rate hiking cycle.
“With savings rates potentially at or near the peak, locking in a high fixed rate now can help give more savers an inflation-beating return if prices continue to soften. Remember, not everyone benefits from the top deals though with major lenders still guilty of offering below-par rates despite regulatory warnings so shopping around for the best offers is key.”