Debt on the Rise

Numbers released by the Bank of England on the second of April has shown a startling increase in the debt numbers. It seems that UK consumer debt has increased to the highest level in five years for the month of February. The data is also suggesting that there is no activity in the housing market at present. In other words the mortgage lending is stable and the approvals are at a low. Yet consumer lending rose to 9.8 billion pounds in February. The economists putting the projections together in January and at the last half of 2007 thought that the debt would only reach 8.4 billion pounds. January found that the numbers were at 8.4 billion pounds.

So why did consumer lending increase more than expected, even with flat mortgage numbers? It seems that the debts are piling up due to the slowing economy. Despite the rise in debt, which rose above the 2002 numbers, which were considered extremely strong that many UK residents are having to use other credit sources. It is unclear at this point just what the UK residents are using for credit in the line of personal borrowing.

There was definitely a rise in credit card lending from January to February. In fact the numbers for February were 350 million pounds to the 120 million pounds it was previously. Other loan categories have also been on the rise like student loans and other banks that are lending to consumers. These numbers rose by 2.0 billion pounds in January.

Most of the credit increase has come from bank lending. In fact in February the numbers were 1.6 billion pounds, making the debt closer to 410 billion pounds in a raise from the beginning of the year. This number includes credit card lending as well as overdraft lending.

The Bank of England has also seen a rise in tuition fees, which accounts for the increase in the student loans that have occurred in the last year.

Most economists are extremely surprised by the jump in February regarding the debt. They believe it is partly due to UK residents panicking about tighter credit lending in the near future, so they have tried to get a loan now when it is still possible.

Underscoring in the housing market has also lent to the expansion in the net mortgage lending to the 7.4 billion pounds. Most of the economists felt that mortgage lending would be closer to the 10 billion pound mark so they were also surprised that the numbers came in lower this year than in 2007.

Mortgage approvals have also been decreased in recent months. In February only 73,000 mortgages were approved. January approvals were 74,000 and December of 2007 were 74,000 approvals. This is down significantly from the 120,000 approvals in the February 2007.

The reason for such significant decreases in the housing market has everything to do with the lenders and banks. They have seen the credit crunch in the US and decided that they can’t let the economy in the UK have such a slump. So they have begun to make it more difficult for anyone to get a loan. This means that the banks are looking more at the risk and liquidity of those wishing to borrow money. If it is too high they will decline the application.

The Bank of England has tried to help with these lending issues in reducing the interest rate. They have lowered the rate twice since December 2007 and it is now set at 5.25%. The central bank has also been easing back on their policies in which there may be a third rate cut in the next few months.

Prime Minster Gordon Brown spoke on April 1st regarding his concerns for the economy and some of the plans he has to help boost the economy to a more stable point. He believes that homeowners and businesses need to be worried about their living and jobs especially in the housing market area.

On another front housing prices have been falling. Hometrack is just one company looking at the numbers for what houses are selling at. They stated in their news release that housing prices fell for the six month in a row in March. The annual rate of growth is also at its weakest point in two years. Nationwide has seen that price growth has actually lowered to the worst in twelve years.

The Bank of England believes that mortgage equity withdrawal has also fallen to its worst in several years, especially in the fourth quarter of 2007. All of the figures that have been released recently for consumers have indeed shown a slowing growth in the UK, but there are other areas of concern such as inflation and recession that have been mentioned in recent months, causing panic among residents.