UK Finance’s latest Household Finance Review has revealed that both the volume of transactions and total spending on credit and debit cards was up slightly in the second quarter at more than £75bn, from around £72bn in the first quarter
Consumer spending has remained stable in the second quarter of 2022, but new data reveals indicators of tough times ahead.
UK Finance’s latest Household Finance Review, produced in collaboration with Accenture, has revealed that both the volume of transactions and total spending on credit and debit cards was up slightly in the second quarter of this year at more than £75bn, from around £72bn in the first quarter.
UK Finance said the increased spend is likely due in part to higher prices driving up average spend, including more expensive petrol and food, however the volume of transactions rose too, particularly in the travel sector.
In addition, borrowing via personal loans increased. With inflation forecast to rise, it is possible that some borrowing has supported earlier-than-planned purchases, locking in today’s prices before they increase.
Household savings built up through the pandemic largely remained stable but did not grow, reflecting higher costs constraining people’s ability to save money.
While overdraft levels rose gradually in the second quarter, at around £5.5bn, total overdraft debt remains five per cent below the levels seen prior to the pandemic.
Household spending was stable in the Spring, with increased personal loan borrowing, said Eric Leenders, managing director of personal finance at UK Finance. We understand that some consumers are making larger purchases earlier than planned to stay ahead of inflation. As we head into the autumn, the pressure on household finances will increase and we anticipate a drop in consumer spending and house-buying activity.
For customers on fixed-rate mortgage deals, their monthly mortgage payments will not change. However, homeowners seeking to refinance can expect to see a reduction of just under 11 per cent of their disposable income. This would leave the average consumer with around one quarter of their net income left over after refinancing.
For households in the lowest income brackets, these borrowers could face a smaller range of refinancing options, as they may fall short of some lenders’ Financial Conduct Authority-mandated income-expenditure affordability tests.
However, most customers will be able to refinance on the open market or refinance onto a new deal with their existing lender.
House purchase activity returned to pre-pandemic norms in the second quarter – which is down on the spike in activity levels seen a year ago.
However, looking ahead the same cost of living pressures impacting affordability for re-mortgagors are likely to dampen effective demand for house purchases in the coming months.