AJ Bell : Credit card borrowing spikes and mortgages slump

Credit card borrowing spikes and mortgages slump

Laura Suter

4 January 2023

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AJ Bell press comment -4 January 2023

• Mortgage approvals drop to lowest level since June 2020
• Credit card spending tripled between October and November - to £1.2 billion
• Personal loan costs hit a five-year high
• Savings dropped, but £5.7 billion was still stashed in savings accounts in November
• Savers got savvy, ditching zero interest accounts for fixed-term deposits

Laura Suter, head of personal finance at AJ Bell, comments on the latest Bank of England Money and Credit figures:

"The after-effects of the mini-Budget are still being felt in the mortgage market, with approvals for home buying dropping to their lowest level since June 2020, when the market ground to a halt during the pandemic. This indicator of the future health of the market shows that the combined spike in mortgage rates and warnings about house price falls have clearly put the jitters into homebuyers.

"November's figures also reveal a spike in debt. As a nation we spent £1.2 billion on our credit cards in November - triple the amount spent in October. Total borrowing, including personal loans and car finance, more than doubled from £700 million in October to £1.5 billion in November. These figures will inevitably climb again once December's numbers are revealed, as a large chunk of the cost of Christmas is put on plastic.

"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.

"But some people are still saving, highlighting the current divide in the nation. Total savings dropped slightly in November, but £5.7 billion was still stashed into savings accounts in the month. Despite the cost-of-living crisis the savings levels in the UK are still dramatically higher than pre-pandemic. As a nation we have an extra £330 billion in savings accounts than before the pandemic, with a total of £1.8 trillion sitting in savings accounts.

"The rates war means savers have got savvy, with people shifting their money out of accounts paying no interest and into fixed-term accounts. Savers took £5.2 billion out of accounts paying zero interest, the highest figure since records began. But rather than spending the cash, it was funnelled into fixed-term savings accounts, which have seen a big spike in rates in the past few months. Savers rushed to lock in deals before they were withdrawn by banks for meeting capacity. There has been a nine-fold increase in the rates on offer on fixed-term accounts over the past year, with the average rate standing at 0.36% last December and rising to 3.27% in November."

Source: Bank of England.

Laura Suter Head of Personal Finance

Laura Suter is head of personal finance at AJ Bell. She is a multi-award winning former financial journalist, having specialised in investments. Laura joined AJ Bell from the Daily Telegraph, where she was investment editor. She has previously worked for adviser publications Money Marketing and Money Management, and has worked for an investment publication in New York. She has a degree in Journalism Studies from University of Sheffield.

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