Household credit borrowing saw a significant increase in May, doubling compared to the previous month, while mortgage approvals continued to decline, new figures reveal.
Consumer credit borrowing rebounded to £1.5 billion during the month, up from £800 million in April, according to data from the Bank of England.
This includes borrowing through methods such as credit cards, personal loans and car finance, all of which saw an increase month on month.
Conversely, the number of mortgage approvals for house purchases dipped slightly to 60,000 in May from 60,800 in April.
This figure provides an insight into what future borrowing and house sales may look like.
Furthermore, property buyers borrowed half the amount of money to secure their homes, dropping from a total of £2.2 billion to £1.2 billion month on month, the Bank reported.
Alice Haine, a personal finance analyst at Bestinvest by Evelyn Partners, suggested that the dip in mortgage approvals reflects “lingering affordability concerns causing borrowers to approach the market with caution”.
“Inflation may be easing, but persistently high borrowing costs are still making it hard for buyers to secure the homes they want,” she said.
“Interest rate cut hopes have been dashed throughout 2024, which is why all eyes are pinned on the next rate decision at the start of August when buyers and those looking to refinance are hoping for some respite.”
The rise in consumer borrowing could be partially due to increased spending ahead of the summer holidays, according to experts.
However, there are warnings against taking on more debt while interest rates remain at a 16-year high.
Karim Haji, global head of UK financial services at KPMG, stated that the uptick should be “monitored closely by lenders”. He added: “Even if the Bank of England opts to cut the base rate at the next meeting, a likely 25 basis point cut would still leave the base rate above its long-run level.”
A 25 basis point cut would bring down the current interest rates from 5.25 percent to five percent.
Mr Haji further commented: “With this in mind, more borrowing at higher rates, at a time when the cost of living is still high, should be cause for additional vigilance amongst lenders,”.
In May, the amount of money deposited by households with banks and building societies increased by £5.3 billion.
This increase was driven by an additional £4.2 billion flowing into ISA accounts, following a record-high inflow of £12.3 billion locked into savings the previous month.
These figures coincide with the start of the new tax year in April, with people seizing the opportunity to transfer money from taxable savings accounts into tax-free ISAs.
