Consumer borrowing increased significantly in June in the UK and mortgage approvals decreased more than expected, both indicators that the cost of living issue is tightening its hold on the economy.
According to Bank of England data released on Friday, lenders approved 63,726 home loans, which is the lowest number in two years and a 3 percent decrease from May. Unsecured consumer debt increased by £1.8 billion ($2.2 billion), far more than the £1.2 billion average over the preceding six months.
The decline in mortgage financing suggests that the housing market, which soared during the pandemic, has lost impetus. The largest UK mortgage lender, Lloyds Banking Group Plc, forecasted this week that house prices will only increase by 1.8 percent this year and decline by 1.4 percent in 2023.
The rating reflected the increased cost of borrowing as interest rates were raised by policymakers to rein in inflation that was out of control. The effective interest rate on new mortgages increased to 2.15 percent in June, according to BOE data, the highest level since late 2016. The highest increase since at least 2015 was a 20 basis-point increase from May. The number of mortgages advanced decreased to £5.3 billion, which is below the average for the preceding six months.
Credit cards account for more than half of the increase in consumer credit, which may partially represent consumers who are struggling to make ends meet by borrowing in times of difficulty. According to a study by the Office for National Statistics released this week, more than one in five adults said they had to borrow more money in the previous month.
The amount could also be the result of spending on summer holidays following two years of restrictions on overseas travel due to pandemics.
The BOE reported that households deposited an additional £1.5 billion with banks and building societies in June, down significantly from £5.2 billion in May and the lowest amount in more than four years, as a further indication of the strain on household earnings.