Borrowing booms for the first time since the onset of the pandemic – just as rates rise

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Consumer borrowing (excluding mortgages) is up 0.4% in a year – the first positive annual growth since the onset of the pandemic.

In November 2021, we borrowed another £1.2 billion in consumer credit (excluding mortgages), including £0.9 billion on credit cards.

Credit card borrowing is down just 0.2% in a year, while other loans (including car finance) are up 0.6% in a year.

The cost of new loans rose to 6.43%, up from 6.27% a month earlier, and a low of 4.41% at the end of June.

We saved another £4.5 billion, plus £0.2 billion with NS&I. This is well below the monthly average in the previous 12 months of £11.2 billion and is below pre-pandemic savings levels which averaged £5.5 billion in the 12 months to February 2020.

The Bank of England reported on effective interest rates for November: Effective interest rates – November 2021 | Bank of England

The Bank of England issued its credit report for November: Money and Credit – November 2021 | Bank of England

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown: “Our timing couldn’t have been worse: borrowing boomed and savings slid, just as interest rates started to rise. Consumer borrowing saw its first positive annual growth since the onset of the pandemic, while savings were less than half the average of the previous 12 months, and even below pre-pandemic levels.

“The spending squeeze has put our budgets under real pressure, with prices rising on all sides, and inflation hitting 5.1% in November. Many of us have turned to credit cards to close the gap, as the price of everything from energy bills to filling up the car or supermarket trolly has soared. We also flashed the plastic more in November as we shopped early for Christmas – for fear that shortages of everything from toys to turkeys could scupper the festivities.

“One major component of consumer borrowing is motor finance, and the runaway cost of new and used cars has meant we’re taking larger loans. In November, the cost of second-hand cars had risen 27.1% in a year, so it’s hardly surprising that we’re having to borrow more to cover the cost.

“The timing couldn’t have been worse, as rates on loans and overdrafts started to climb towards the end of the year, as concerns about inflation led to speculation that the Bank of England was set to raise rates. The rise from 0.1% to 0.25% was eventually put off until December, but was priced into the cost of borrowing well before then.

“The extra spending has thwarted our attempts to save too. We saved another £4.5 billion, plus £0.2 billion with NS&I. This is well below what we’ve been putting away during the pandemic, and is even less than pre-pandemic levels. This is despite the fact that savings have become marginally more rewarding.  Savings also started to reflect expectations of a rate rise, with the average rate on fixed term savings rising again from 0.36% to 0.37% – up from a low of 0.29% at the end of August.

“Mortgage borrowing, meanwhile, recovered slightly from the drop in October after the end of the stamp duty holiday, but is well below the levels we saw when the stamp duty holiday was at its most generous. Mortgage rates hit a record low in November, but this will be the bottom, because banks reacted quickly when rates rose the following month. However, with base rates at just 0.25%, we don’t expect this to make a significant dent in demand.”

Mortgage figures in the release

  • We borrowed £3.7 million on mortgages, up from £1.1 billion in October – immediately after the end of the stamp duty holiday.  It’s £2.9 billion below the 12-month average to June 2021(when the bulk of the stamp duty saving ended).
  • Approvals for the next few months were 67,000, unchanged from the previous month and around the pre-pandemic average.
  • Average new mortgage rates hit a new low of 1.5% in November 2021.