Consumer credit picking up, but remains well below unsustainable pre-crisis levels
Data released this week by the Bank of England showed that consumer credit increased by £0.6 billion in December. This compares to £1.2 billion in November and a £1 billion average over the past six months. Although the figure is much lower than it was in November, this is largely because last month's exceptionally strong data was boosted by a surge in spending on Black Friday and was in fact the greatest upwards movement in five and a half years.
As a result of the financial crisis the annual percentage change in total unsecured lending to individuals was in negative territory for virtually every month from mid-2009 to late 2012. However, since then credit has been rising again. This upward trend is likely to continue as consumer spending picks up further in 2015, partially fuelled by real wage growth and partially by increased credit.
Although consumer credit growth is picking up, for now there is no reason to fear that the economy is on track to an unsustainable level of lending akin to the pre-financial crisis period. The actual amount of outstanding loans is well below 2008 levels and the same goes for amounts outstanding per household.
Also included in the data release were the mortgage approval figures. In December a total of 60,275 mortgages were approved, slightly down from the average of 62,652 over the previous six months. Contributing to subdued mortgage approval figures is the mortgage market review (MMR) guidance introduced in April 2014. MMR aims to curb risky lending and borrowing by imposing more stringent criteria on mortgage applicants. This, combined with high deposit requirements acts as a barrier for many buyers, especially first time home owners.
Plateauing mortgage approval figures continue to suggest weakening demand. Cebr expects house prices to marginally decline in 2015 and the mortgage approvals figure for December is the latest in a long series of indicators painting a cooler picture of the housing market.