Bank of England Money & Credit

ended 28. July 2022

Tomorrow morning at 09:30, we're getting the latest Bank of England Money & Credit report. Basically, it will provide the latest mortgage approvals numbers and show how much is being borrowed in personal loans or put on credit cards. The latter are likely to be more of the focus. So a few Qs for brokers and money experts/IFAs alike. Answer any or all, your call.

  • Are you seeing more people/clients take out personal loans and/or credit cards amid the cost of living crisis?
  • With rates rising and the affordability screws tightening, has the volume of mortgage transactions dropped over the past few months, or is the mortgage market as strong as ever?
  • In your experience, are fewer people saving in the current climate? An ONS report last week showed that roughly half of people won't be able to save anything in the next 12 months.
  • What's the outlook for the average household's finances in your opinion? How bad could things get in the next 12 months?
  • How could the current cost of living crisis impact the property market?
  • Any anecdotes of financial stress among your clients, please share (no need to name them, obviously).

6 responses from the Newspage community

We've seen a surge in homeowners wanting to remortgage in the middle of fixed rates and pay their early redemption charges, as they clamber to reduce their balance sheets and lock into 5-year deals. The reason why is that we've not even begun to see the true impact of the cost of living crisis. I fear that with two more energy price cap rises in October and January, rising mortgage rates and food price shocks already baked in, things will get very ugly. Undoubtedly, we'll see rocketing use of credit cards and personal loans to try and make ends meet, along with a jump in payday loans. This cost of living crisis will be far worse than the winter of discontent; at every stage, politicians have underestimated the impact this will have on millions of families, not just now but for years to come. Millions of households have no financial resilience thanks to a decade of real terms pay cuts and Tory austerity. Without a doubt, we'll see massive spikes in repossessions accompanied by a spiralling mental health crisis, which will be the straw that breaks the camel's back for our NHS. Politicians should heed the warning of the great thinker Aristotle; Poverty is the parent of crime and revolution.
Disposable income is taking a hammering and this situation will only worsen as people increasingly rely on credit cards and loans to stay afloat. The financial buoyancy aid of credit cards and loans can rapidly turn into a breeze block. As for savings, these will be a pipe dream for many as a lot of people's utility bills are higher than their mortgage payments, which is crazy. On the mortgage front, the people speaking to us now are super serious about remortgaging or buying. The window shoppers have gone as, with rates and inflation rising, now is not the time to buy unless you are committed. In the months ahead, expect house price growth to slow as borrowing becomes more difficult due to inflation and lenders tighten their criteria.
Though disposable income is reducing amid the cost of living crisis, I am seeing people spend more on their credits cards to fund their lifestyles. For now at least, I would deem this to be more about 'keeping up with the Joneses' rather than on necessities. I can see this changing further into the year as savings dwindle and the real effects of energy price, fuel and food price increases take hold. The amount that people can save each month has dropped off a cliff as this money is being spent on surviving. Over the next 12 months, I can see house price increases slow down as buyers will not be able to afford the higher monthly payment when negotiating their mortgage rate. This week alone, the two largest lenders, Halifax and Nationwide, are putting their rates up by a further 0.3%. I saw a client yesterday who explained it was much more important to understand what her monthly payment would be if rates reached 7% as this had been spoken about in the Conservative leadership debate and she is very anxious about moving. We are likely to see property market activity reduce as a result.
It seems clear that this winter is going to be incredibly tough one for many people, particularly if it's a cold one. At the moment, there's no obvious end in sight to the energy crisis and January could see prices three times higher than a year earlier. My best guess is that by next summer we'll be through the worst. But by then, we'll have more debt, fewer savings and higher unemployment. Why on earth Rishi Sunak thinks it a good idea to raise taxes at a time like this is beyond me. With fuel, food, tax, energy and mortgage rates all going through the roof, it's hard to see anything other than falling house prices. Shortage of housing stock or not, if people can't afford to borrow as much, then property prices will fall.
In the current economic climate, consumers are being hit by higher prices at the shops and higher interest rates on their mortgages. This means they are using up their savings that might have been built up during the Covid years. People are needing to use credit cards and personal loans to finance the most basic of requirements in some circumstances, and we should expect things to get worse as inflation heads even further north and interest rates climb as a way to control inflation. The next 12 months will inevitably bring a recession to the UK. This will result in stagnant property prices or a shallow downturn. Refinancing will become less easy and homeowners could feel some real pain if they have high levels of personal debt.
Recently, I've had a few first-time buyer clients contact me to say that they are really struggling to save for the deposit at all because of the increased cost of living. The amount that they were previously putting away for savings is being eaten up by increased energy, petrol and food bills. This is bound to have a trickle down impact on the housing market at some point as a shortage of first-time buyers into the market causes problems for the entire property market. There's every chance mortgage activity will drop off during the second half of the year as the cost of living crisis scuppers affordability.