Borrowing booms, but it’s set to get tougher: Bank of England

Demand for lending on credit cards and loans rose in the first three months of the year and is expected to do so again this spring, as we struggle to cope with rising prices. Demand for mortgages increased slightly in the first three months of 2022, and is expected to rise again in the three months to the end of May. Mortgage lenders expect to make it harder to get a mortgage this spring. Defaults for both mortgages and unsecured lending are expected to increase.

The Bank of England has published details of credit conditions in the first quarter of 2022: Credit Conditions Survey – 2022 Q1 | Bank of England

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown: “Plastic is fantastic again, and we are clamouring for more mortgages, but borrowing is set to get tougher.

“Demand for loans and credit cards boomed at the start of this year. With inflation gathering momentum, and eye-watering price rises for many of the essentials, it has forced more of us to borrow to make ends meet. Credit card borrowing grew faster than any other month on record in February (the most recent month we have data for).

“But while this feels like a solution in the short term, you’re building up problems for the future, because you’re adding interest and repayments to the ever-growing mountain of monthly costs, which makes it harder and harder to stay on top of our finances each month.

“Rising rates are compounding the problem. The banks have started to pass rate rises onto borrowers, so you have to stretch your cash even further to cover interest payments. It’s no wonder that the banks say they’re expecting default rates on both mortgages and unsecured lending to rise in the next couple of months.

“For mortgage borrowers, lending is getting tougher too. A growing number of banks are also factoring higher prices into their mortgage calculations, so borrowers may not be able to get the size of loans they were expecting. Mortgage lenders say they expect to tighten lending as we go through the spring, which could start to apply the brakes on the housing market.”