Debt demand booms but banks tighten purse strings: Bank of England

Demand for lending on credit cards and loans rose between April and June, and demand for cards is expected to do so again through the summer, as rising prices take their toll. Demand for mortgages increased in the spring, but is expected to fall back in the three months to the end of September.

It has been harder to secure a mortgage deal this spring, and lenders expect to make it even more difficult to get a mortgage in the coming months. Defaults for both mortgages and unsecured lending are expected to increase.

The Bank of England has published details of credit conditions in the second quarter of 2022:Credit Conditions Survey – 2022 Q2 | Bank of England

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown: “Demand for debt flourished this spring, as price rises ran rampant. The banks expect us to keep reaching for our credit cards to plug the growing gaps in our finances during the summer too. Unfortunately it means people risk building up even bigger problems further down the track, which is one reason why the banks are toughening up.

This was the period when the energy price cap hiked kicked in, and we felt price rises most keenly. The HL Savings and Resilience Barometer found that as a result of price rises across the board, real disposable income fell by 3%, so 41% of households were forced either to cut their costs, dip into savings or borrow money. This data shows that borrowing has been a key part of this picture.

So far, lenders have been keen to make this borrowing available, but over the summer, they’re planning to tighten the purse strings. With inflation at this level, they’re mindful that there’s a rising risk that people will struggle to stay on top of their debts.

The problem with borrowing for everyday costs is that you’re adding more interest and repayments to your ongoing costs, so that every month, the impossible challenge of making ends meet becomes harder. As we’ve gone through the year, rising interest rates have added to the problem.

It’s no wonder that defaults on unsecured lending increased over the spring, and the banks say they’re expecting default rates on both mortgages and unsecured lending to rise in the next couple of months.

It got tougher to secure a mortgage during these three months, as banks started factoring higher prices into their mortgage calculations. They said they expected to make it even harder to borrow over the summer. It’s yet another pressure on the housing market, which is showing signs that it’s starting to cool. And while demand for mortgages increased during the spring, the banks are expecting this to fall away a little over the coming months.”