Consumer debt levels soar in UK
Looking at the headlines today you’d think we were on for a renewed spurt in house prices and spending in the UK after the British Bankers Association (BBA) released it’s latest figures for May. Read the actual report and you’ll see something totally different, consumer spending and debt is getting out of hand again.
Today the BBA announced that value of approved housing loans in May increased to £11.3bn, that’s a 33% increase over May last year.
Quoted in many articles this afternoon, Howard Archer, the economist at Global Insight had this to say – The robust BBA mortgage lending and approvals data for May indicate that the housing market upturn is still alive and kicking, following some recent signs that it could be starting to falter.
So all looks good for the housing market and now our friends at the estate agents (realtors) can say ‘told you so’. Well hang on to your foppish hairstyles for a second.
What the figures also go on to say are that Remortgaging approvals have increased by 8% to 68,296, with an increase in value by 28% to £8.4m. The BBA also indicated that the overall figure on lending is £5.7bn, the highest figure since 2004.
Let’s look to Kelvin Davidson of Capital Economics for a more pragmatic view on these figures – The balance of evidence suggests to us that overall mortgage demand will remain in its current holding pattern for the next one or two months. However, we continue to believe that stretched affordability and rising unemployment will be factors behind a downward drift in mortgage demand in the second half of the year.
What seems to be actually happening is that people are using the increase in property prices to remortgage and extend the amount borrowed through securing against the major asset they have – the home. Net spending on credit cards has slowed with credit card debt levels dropping by £251m during the month. Overall unsecured debt levels, which include credit cards, overdrafts and loans have increased by £669m according to the BBA.
With debts once again moving to record levels it seems that with the onset of summer and associated ‘feel good’ factors that the consumer may once again be on the march. However, the growth in unemployment and other factors bearing down on the economy may mean that consumers are overstretching themselves and borrowing too much at the very time that caution needs to be the watch word. It’s likely that internal and external factors weighing in on the Bank of England may force its hand at the next MPC meeting. A nasty shock may be around the corner.
Sources
UK debt mountain still growing Telegraph
UK mortgage approvals show ‘healthy’ activity FT
Housing market shows signs of life Guardian Online