Credit cards

People turn to credit cards as borrowing grows fastest in two years

Households relied on their credit cards for support in February as consumer borrowing rose at the fastest annual rate in two years. The annual growth rate of all consumer credit accelerated to 4.4% in February from 3.2% in January, according to Bank of England figures.

It was the highest annual growth rate since February 2020 – the month before the UK’s first coronavirus lockdown began. Consumer credit includes forms of borrowing such as credit cards, overdrafts, personal loans, and auto dealer financing. As part of the 4.4% annual increase, credit card borrowing increased by 9.4%.

The figures were released as households are surrounded by rising bills, including for energy, food, rent, mortgages, council tax, transport, as well as an increase in National Insurance for help pay for health and social care. Households borrowed an additional £1.9bn in consumer credit in February, compared with a pre-pandemic average of £1bn heading into February 2020, according to the report.

Credit cards accounted for £1.5bn of additional borrowing in February 2022, with the rest made up of other forms of credit such as car dealer financing and personal loans.

Robert Alster of Close Brothers Asset Management said: ‘Strong credit card lending may signal that many households have already depleted their pandemic savings and are sticking to plastic spending.’

Thomas Pugh, economist at RSM UK, said: “Normally an increase in consumer credit is a good indication that consumption is rising strongly as it tends to rise when the economy is good. People feel confident enough to borrow and splurge on big-ticket items, like cars. This time may be different, however.

“An increase in consumer borrowing over the next year is more likely to be a sign that high inflation is pushing consumers to maintain their borrowing lifestyle.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the growth in consumer credit “likely reflects households trying to maintain consumption at a time when real disposable income is falling sharply, rather than rising.” go on a spending spree”.

Peter Tutton, Head of Policy, Research and Public Affairs at the StepChange Debt Charity, said: “More and more what we are seeing is that people struggling with debt are having struggling to honor not only their credit repayments, but also their priority bills.



“We find that people who have debt problems are struggling to meet not only their credit repayments, but also their priority bills”

He said that as the year progresses, more support will be needed “for those who are simply unable to absorb increases in the cost of living into their household budget”.

He added: “In the meantime, we urge anyone who is struggling to make ends meet to seek help from a reputable debt counseling organization at an early stage, rather than resorting to strategies. potentially more harmful coping options such as high-cost credit.”

There were also signs that hard-pressed households were able to save less, with £5.1billion paid into accounts held with banks, building societies and NS&I in February. This compares to an average monthly net flow of £5.5bn during the 12-month pre-pandemic average to February 2020.

Karim Haji, head of financial services at KPMG UK, said: “When it comes to households, the spring data will be very revealing. A trend at the start of the Covid-19 pandemic was an increase in household bank deposits but, with inflation rising rapidly, the same seems unlikely to happen this year.

“Instead – unfortunately – the numbers we could see rising are defaults later in the year as people struggle to pay back personal loans and credit cards.”

The number of mortgage approvals granted to homebuyers, meanwhile, fell slightly to 71,000 in February from 73,800 in January, but remained above the pre-pandemic average through February 2020. , the bank said.

The soaring cost of living is putting household budgets under pressure, with some having to choose between heating and food.

Here are some resources available if you need help.

Advice to citizens

Citizens Advice is an independent charity providing free, confidential assistance with legal, consumer, housing, debt and other issues. Its website details the help available and where your nearest office is, for face-to-face advice.

Helpline : 0800 144 8848 in England / 0800 702 2020 in Wales (open 9am to 5pm Monday to Friday)

The Trussell Trust

The Trussell Trust supports a national network of over 1,200 food banks, providing free emergency food to those in need. You can use its website to locate support wherever you live.

Hotline: 0808 208 2138 (open 9 a.m. to 5 p.m. Monday to Friday)

Turn2us

Turn2us is a national charity that provides practical support for people in financial difficulty. Its website includes a benefits calculator and details about programs and subsidies in your area, including for energy and water bills.

Hotline: 0808 802 2000 (open 9 a.m. to 5 p.m. Monday to Friday)

Lawrence Bowles, director of research at Savills, said that with the Bank of England’s base rate set to rise further during the year: “We can expect to see further increases in the cost of mortgage interest.

“This will limit what buyers can pay, especially with the affordability stress tests currently in place and rapidly rising energy prices putting pressure on household finances.

“As the imbalance between resilient demand and very low levels of available inventory continues to support (housing) price growth, we can expect to see mortgage advances and other measures of mortgage activity transaction start to fade as we head into the fall.”

Nitesh Patel, strategic economist at the Yorkshire Building Society, said the moderate growth in property prices “would be welcomed by potential first-time buyers”. Remortgage approvals (which only include remortgages with another lender) reached 48,200 in February. This is the highest mortgage total since February 2020, but still below the average seen in the year before the pandemic, according to the Money and Credit report.

Net borrowing by large non-financial corporations jumped to £4bn in February from £1.8bn in January. Small and medium-sized non-financial enterprises (SMEs) made a net refund of £475m, which was lower than a net refund of £791m made in January.

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