Britain’s banks might be resilient – but what about their debt-ridden customers?

Phew! Our banking system isn’t at risk from the turmoil seen in America and Switzerland, according to the Bank of England, even if the markets are treating bank shares like a new Covid variant.

(Here’s the lesson from that: regulation isn’t necessarily a bad thing. The price of deregulating your banking system can be very high, as the US is now discovering.) It was a busy day on Threadneedle Street, with the Bank’s Financial Policy Committee putting up its minutes as the regular update on consumer borrowing was released.

Depositors and borrowers will be pleased about its reassurances in the wake of 11 consecutive interest rate rises and the toppling of wobbly banks overseas. However, the consumer credit update bears close attention.

Mortgage approvals made the most noise, as net lending to individuals tumbled from £2.0bn to £0.7bn in February, the lowest level since April 2016 (excluding Covid). The figures weren’t all that surprising given that house prices have been wobbling. Sellers are typically reluctant to engage in a falling market.

On the other hand, approvals for house purchases actually increased to 43,500 in February, from 39,600 in January, the first monthly rise since August 2022. This despite the fact that the rate purchasers paid for their home loans rose by 36 basis points to a painful 4.24 per cent.

Perhaps the dip in the market might be shorter-lived than expected. Underlying demand remains high; Britain suffers from a shortage of housing and continues to fail younger would-be purchasers, and also renters, with the slow pace of new construction. Affordability is strained. All that banging on about property-owning democracies rings very hollow when the first rung of the ladder is only reachable by those given a leg-up by parents.

Of still more concern should be the figures on unsecured lending. Individuals borrowed an additional net £1.4bn via unsecured credit in February. That was down compared to January (£1.7bn) but January is traditionally a busy month, what with sales and suchlike. On an annual basis, such borrowing was 7.7 per cent higher. The annual rate also accelerated, albeit slightly, from 7.5 per cent in January.

If I were a watchdog, or in government, I might be feeling the hair at the back of my neck prickling just a little.

A troubling development stemming from the cost of living crisis is the rise in people borrowing to pay for essentials – an unsustainable strategy when it comes to personal finance. Personal tragedy is the inevitable result. Bankruptcy, individual voluntary arrangements, dodgy organisations flogging the latter, even the loss of a home; more repossessions are coming.

Consumer group Which? recently estimated that 2.5m households (8.8 per cent) missed or defaulted on a payment in March, up from 8.2 per cent in January and 8.1 per cent in February.

Credit cards are a popular means through which people do this because of how easy they are to borrow through. At often punitive rates. The annual growth rate of this specific sector fell marginally, from 13.5 per cent in January to 13.1 per cent in February. But to see that as a positive can be filled under the heading “clutching at straws”.

Some help with the cost of living crisis has been offered to the poorest but figures such as these suggest it might have been inadequate. Remember that the crisis is biting up the income scale to encompass those who aren’t eligible for any help at all.

The fallout from all this could be brutal. The banking system might be resilient but its customers become less so every time they visit the supermarket or look at their energy bills. Now might be a good time for the Bank to have a quiet word with Britain’s lenders: time to cool it.