29 June 2023
If you are covering the latest Money and Credit statistics from the Bank of England, please see the following comment from Charlotte Nixon, mortgage and financial planning expert at Quilter:
"This morning’s Money and Credit statistics for May now look very out of date as they paint a much rosier picture than the one we currently are suffering even though they are still nothing to celebrate about. These figures don’t account for the last few weeks of mortgage mayhem which will have further muddied these incredibly turbulent waters.
"However, there were problematic signs appearing in May as people raided their savings during the month. Households, on net, withdrew £4.6 billion from banks and building societies, which marked the highest level of household withdrawals on record (for this monthly series starting in October 1997). These scary figures show just what an impact the cost of living is having on people’s finances.
"There have been calls for banks, which have been quick to up mortgage rates, to also raise the interest rates on their savings accounts too. However, bank executives have rebuffed this request saying that if they were to do this then mortgage rates would need to get pushed even higher for them to still achieve their margins.
"However, this might be short-sighted as it is not helping incentivise people to save when times are this tough and as a result we have seen that the combined net flow of both household deposits with banks and building societies and National Savings and Investment (NS&I) accounts amounted to -£3.8 billion in May which was a significant fall from £5.3 billion in April. With people’s incomes stretched they want to be getting a decent return on savings if they can even afford to save at all.
"Net Mortgage approval for house purchases saw a very modest increase from 49,000 in April to 50,500 in May, while approvals for remortgaging saw a rise from 32,500 to 33,600 during the same period. The ‘effective’ interest rate – the actual interest rate paid – on newly drawn mortgages rose by 10 basis points, to 4.56% in May. However, with rates now well into the 6% range for many you can expect that those contemplating a move or purchasing their first home will be spooked. With house prices having already dropped modestly this year, all eyes will be on how the latest mortgage shock translates into property prices.
"Fortunately, the recent creation of the Mortgage Charter will help keep repossessions at bay for the moment as participating lenders have agreed to a significant 12-month delay in initiating repossession proceedings against borrowers who are unable or unwilling to meet long-term payment obligations. This extension offers some slack for struggling homeowners, allowing them additional time to stabilise their financial situations.
"This should at least help stop a flood of properties coming onto the market as people’s homes get repossessed and lenders try to recoup their money. Similarly, borrowers will now have the opportunity to make adjustments to their mortgage terms for a short period, such as switching to interest-only payments. This change can provide immediate relief by reducing monthly repayments. Importantly, borrowers can later return to their original mortgage deal within six months, ensuring continuity and stability while not impacting their credit score.
"This will prevent some people from falling into debt, but the sad reality is that this will not be possible for all and there are going to be millions of people in this country seriously struggling over the next few months.
"The only small ray of light is that net borrowing on consumer credit by individuals decreased from £1.5 billion in April to £1.1 billion in May. In this interest rate environment it would be a real worry to start to see this shoot up. People can quickly find themselves in a dangerous debt spiral, which can become incredibly hard to come out of."
