Mortgage warning sign for housing market, and credit card borrowing booms again: Bank of England

Net mortgage borrowing fell from £6.4 billion to £4.1 billion in April – below the pre-pandemic 12-month average. Mortgage approvals for moves in the next few months fell again from 69,500 in March to 66,000 in April – this is below the pre-pandemic average of 66,700.

We borrowed another £1.4 billion in consumer credit, including £700 million on credit cards. It’s the third consecutive month above the pre-pandemic average. Credit card debt was up 11.6% in a year (the highest since November 2005).

The Bank of England reported on effective interest rates for April: Effective interest rates – April 2022 | Bank of England

It also issued its money and credit report for April: Money and Credit – April 2022 | Bank of England

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown: “The mortgage market hoisted yet another warning sign for property prices, as the number of mortgages being approved for future purchases fell again. Meanwhile, another month of credit card borrowing revealed the growing pressure on all of us.

Mortgage approvals are a useful measure of the health of the property market, because they indicate buyer enthusiasm over the coming weeks. The fact that approvals dropped below the pre-pandemic average in April is yet another sign of the heat coming out of the market.

It comes hot on the heels of news from Zoopla that house price growth fell again in April, the number of sellers being forced to slash the asking price is rising, and the length of time it’s taking to agree a sale is starting to increase. We also know mortgage companies are down-valuing properties they feel are overpriced, and boosting the costs in affordability calculations – making it harder to borrow. At this stage, the property market is positively festooned with red flags.

We’re still not expecting average house prices to fall at this stage, but we can expect price rises to slow significantly, and the market to become increasingly sluggish as we go through the year.

Credit card debt boomed again

We racked up hundreds of millions of pounds more on our credit cards, as horrible price rises left enormous numbers of people with nowhere to turn in April. The energy price cap hike finally kicked in, and anyone who hasn’t found a way to cut costs elsewhere risked facing a nasty shortfall.

Even before energy bills sapped the life out of our budgets, we were falling back on our credit cards more, and it was the third consecutive month when we racked up more card debt than before the pandemic.

However, this isn’t a sign of huge and overwhelming debt. We’re still borrowing far less on our cards than before the pandemic. The rise in card spending was also lower than in both February and March, so this isn’t a horrifying figure.

Instead, we can see risks starting to build. Anyone who is falling back on their card to make ends meet right now may not have an overwhelming card bill yet, but if they can’t cut their spending, there’s a real worry it could get out of hand in the coming months. If you haven’t already searched through every corner of your budget for costs to cut, there’s no time to waste.

Easy access accounts lagged behind

  • The average easy access rate crept up 0.03 percentage points to 0.15%. The average new fixed rate rose 0.17 percentage points from 0.92% to 1.09%.
  • Households saved another £5.7 billion, plus another 600 million with NS&I. This is above the average combined total of £5.5 billion in the year before the pandemic.

April was another miserable month for most easy access savers, with average rates at just 0.15%. The last time the Bank of England was at the same rate as it was in April, the average easy access rate was three times higher. The blame lies with the high street banks, who are still sitting on a pile of lockdown savings, so don’t feel the need to pass on anything more than the tiniest fraction of the rate rises to savers – if they pass on anything at all.

The good news is that while the banking giants refuse to budge, the smaller and newer banks are upping their game significantly. Chase has led the pack, offering 1.5% – with the proviso that you have to move your current account to them too. Even with no strings attached you can get 1.32% from Cynergy Bank and 1.31% from Al Rayan. It means that anyone who is holding off from switching in the hope that their high street bank will raise its rate, should stop waiting and start switching.

If you already have 3-6 months’ worth of essential expenses in an easy access savings account, you can consider fixing any other savings for the periods that suit you best. The good news is that fixed rate savings were already rising in April, and the average rate is now higher than the last time the Bank of England was at the same rate as in April – at 1.09% compared to 1.04%. The best rates over one year continue to creep up, and right now Al Rayan is offering 2.4%.”