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Divided nation: Debt up but savings also rise

Paloma Kubiak
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Paloma Kubiak

Brits borrowed an extra £1.4bn in credit in April to deal with the cost-of-living crisis. But households also deposited £6.3bn into savings accounts, a higher figure than the 12-month pre-pandemic level.

Credit borrowing

Half of the £1.4bn consumer credit borrowing was lending on credit cards, while the other half was via car finance and personal loans.

This figure for April is up on March’s £1.3bn figure and is now the third consecutive month where borrowing has been higher than the 12-month pre-pandemic average (to February 2020) of £1bn.

Credit card borrowing rose 11.6% in the year which is the highest since November 2005, the money and credit statistics from the Bank of England (BoE) revealed.

Rates on personal loans rose 60 basis points to 6.52% in April while the effective rate on interest bearing credit cards was 18.08%, which is 47 basis points below the February 2020 pre-pandemic level.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said:We racked up hundreds of millions of pounds more on our credit cards, as horrible price rises left enormous numbers of people with nowhere to turn in April. The energy price cap hike finally kicked in, but even before energy bills sapped the life out of our budgets, we were falling back on our credit cards.

“However, this isn’t a sign of huge and overwhelming debt. We’re still borrowing far less on our cards than before the pandemic. The rise in card spending was also lower than in both February and March, so this isn’t a horrifying figure.

“Instead, we can see risks starting to build. Anyone who is falling back on their card to make ends meet right now may not have an overwhelming card bill yet, but if they can’t cut their spending, there’s a real worry it could get out of hand in the coming months. If you haven’t already searched through every corner of your budget for costs to cut, there’s no time to waste.”

Household savings

For Laura Suter, head of personal finance at AJ Bell, the April figures showed a “divided nation” as despite the increase in credit, many households still managed to save cash amid rising prices.

Savers deposited an additional £5.7bn with banks and building societies in April. They also contributed an extra £600m into the government’s savings arm – National Savings and Investment (NS&I).

As such, including NS&I deposits, the net inflow was £6.3bn, up from the £5.5bn recorded during the 12-month pre-pandemic period.

Suter said: “Savers are being better rewarded for their efforts – although only marginally – with interest rates rising in April. However, the average rate savers are getting on easy access accounts is still a miniscule 0.15% — meaning £10,000 saved is earning just £15 interest a year.

“With a top rate easy access account of 1.5% at the moment, savers could earn ten times the interest just for switching. The reality is that even at 1.5% you’re still losing a lot of money to inflation each year. At current inflation of 9% that’s a loss of £750 a year in spending power for someone with £10,000 saved.”

Mortgage debt and approvals fall

Mortgage debt decreased to £4.1bn, down from £6.4bn in March. The BoE noted this was slightly below the pre-pandemic average of £4.3bn in the 12 months to February 2020.

Gross lending rose slightly to £26.5bn, up from £26.2bn while gross repayments increased to £21.5bn, from £20bn in March.

Mortgage approvals – an indicator of future borrowing and a good measure of the state of the market – decreased from 69,500 to 66,000.

The BoE said both these measures are slightly below their 12-month pre-pandemic averages. Further, approvals for remortgaging decreased from 49,500 to 47,800.

Steve Seal, CEO, Bluestone Mortgages, said: “Despite a dip in mortgage lending due to the current inflationary environment, it’s clear that the homeownership dream lives on. However, as the cost-of-living crisis continues to put a squeeze on household and personal finances, we expect to see a growing cohort of customers locked out of the mainstream mortgage market.”