Borrowing boom: Biggest monthly rise in credit card debt for 30 YEARS recorded last month in signs households are grappling rising bills
- Bank of England data shows £1.5bn in new credit card borrowing last month
- This marked a rise of 9.4% in a year, amid a sharp rise in household bills
- Amount put in savings accounts dropped £400m compared to pre-pandemic
- Size of typical mortgage also rose 10.4% year on year
Credit card borrowing saw its biggest monthly spike in 30 years last month, in a clear sign that Britons are struggling to cope with the cost of living crisis.
New credit card borrowing in February totalled £1.5billion, a rise of 9.4 per cent in a year, according to latest Bank of England statistics.
New overall consumer credit borrowing – which also includes things like car finance and personal loans – increased 4.4 per cent in a month to £1.9billion.
Turning to credit: Bank of England data shows that people may be turning to credit cards once more to cover bills
This was almost double the pre-pandemic average for the 12 months to February 2020, which was £1billion.
Total outstanding balances for consumer credit now stand at £199.5 billion.
The chief executive of a debt charity said more people would start using credit cards in order to pay their bills, as the cost of living continues to rise.
Joanna Elson, chief executive of the Money Advice Trust, the charity that runs National Debtline and Business Debtline, said: ‘Our concern is that more people will be pushed to credit to cover rising bills, which could be storing up problems further down the line when repayments are due.
‘Millions of people are already struggling with the cost of energy, fuel and food – and with April’s energy price rise days away and no respite in sight from other rising prices, this test is only going to get far harder.’
The Ofgem energy price cap will rise on 1 April, meaning the bills of 22million households will increase
As well as the rising cost of living, falling interest rates may also have led to the borrowing spike.
The cost of credit card borrowing was 18.26 per cent in February, 29 basis points below the February 2020 level.
Rates on new personal loans to individuals fell by 7 basis points to 6.14 per cent, 76 basis points below the February 2020 level.
Savings also dropped below pre-pandemic levels. In February, a total of £5.1billion was saved, including deposits with banks and building societies as well as the Government savings bank NS&I.
In the year before the pandemic, the combined monthly savings average was £5.5bn.
Interest rates are on the rise for savers, though they still remain low.
The effective interest rate paid on individuals’ new deposits with banks and building societies rose by 10 basis points to 0.77 per cent.
The rise in credit card borrowing comes after the early stages of the pandemic in 2020 saw more people paying huge sums of debt, as outlined in the chart below, which totally bucked the long-term trend for credit growth.
Consumer credit increased sharply in February, Bank of England data shows
Meanwhile, the amount deposited in savings accounts dropped
Mortgage borrowing rises 10.4% in a year
The statistics also showed that the amount borrowed on the typical mortgage has increased more than 10 per cent in a year due to rising house prices.
According to the Bank of England statistics, the average mortgage was £235,474 in February 2022 – up 10.4 per cent since the same time last year, and 4.6 per cent compared to January 2022.
A total of just under 71,000 mortgages were granted in February, representing a drop of almost 3,000 compared to January.
Remortgaging approvals were also at their highest since the onset of the pandemic.
Many lenders are increasing their mortgage rates due to the rise in the Bank of England’s base rate, but the Bank of England Statistics were taken before the latest rise to 0.75 per cent last week.
They show that the rate on new mortgages rose 0.1 percentage point to 1.59 per cent in February.
Lawrence Bowles, director of research at property agents Savills, said: ‘With the Bank of England looking set to increase the base rate of increase further through the year, we can expect to see further rises in mortgage interest costs.
‘That will limit what buyers can pay, especially with the affordability stress tests currently in place and rapidly rising energy prices putting pressure on household finances.’