Some highlights from this morning's report from the Bank of England on borrowing trends in April:
- Net mortgage borrowing fell from £6.4 billion to £4.1 billion in April – below the pre-pandemic 12-month average.
- Mortgage approvals for moves in the next few months fell again from 69,500 in March to 66,000 in April – this is below the pre-pandemic average of 66,700.
- We borrowed another £1.4 billion in consumer credit, including £700 million on credit cards. It's the third consecutive month above the pre-pandemic average.
- Credit card debt was up 11.6% in a year (the highest since November 2005).
Four thoughts.
First, housing is slowing down: a sure sign of recession.
Second, with less mortgage injection of liquidity into the economy the need for more government money is rising.
Third, rising consumer credit suggests growing consumer stress.
Fourth, this is most especially true of the exceptional growth in credit card borrowing. That looks like ends simply not meeting, and the deferral of a crisis to come.
Nothing about this looks good.
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Just a reminder (note to self) about looking after oneself in facing a truly terrifying future, that it really important not to dwell too much in that place, and to consciousky bring oneself back to the present, where, I truly hope, you / I may be safe and unthreatened.
I am relatively privileged in that I am about to retire and whilt my tiny pension will pay the bills, I ought have enough saved to coast until the state pension kicks in, smallest in Europe though it is.
I fear for those who will not manage.
Great news for anyone in a position to offer credit. Some of our leaders seem to think that we’re in for a difficult few months, even if the recent pressures on costs does cease after a few months the people who have borrowed to get through this period are likely to be servicing that for many months, maybe years. In the world of personal finances decisions made in haste/deperation have a habit of lingering for longer than a dodgy Prime Minister.
Just a technical question: how do mortgages inject liquidity into the economy? By definition the money goes to purchase of a house, which is a pretty illiquid asset.
I can see that there will be some cashflow released if someone’s mortgage payments are less than they previously paid in rent, but that won’t often be the case in the short term though may be over the lifetime of the mortgage. And there will certainly be a benefit in the fraction of those mortgages funding building work (e.g. house extension). Otherwise won’t the money mostly stay tied up in the property, at least until a sale which releases equity?
The mortgage proceeds go to someone who no longer has a house
Of course, some goes to buy new houses, but not all. Some goes to inheritances etc
Or there is downsizing
And equity release
All inject money into the economy
On the injecting liquidity question. If you think of any bank loans creating new money into the system it helps see the bigger picture. Property loans are the biggest proportion of loans banks make by far(almost half of all bank lending). What happens is a recession is people stop borrowing for property purchases. So less new money is created month on month. At the same time folks are still paying off old mortgages/commercial property loans, which in essence is the opposite of lending and that destroys money in circulation(after the banks take their cut). Liquidity will fall when net repayments exceed new loans.
The main problem with this money creation system is that it is cyclical and the benefits are very unequal. The banks have no real control over it. The BoE tries to influence it via interest rate setting but in reality the markets set the pace. In a boom everyone wants to borrow but in a bust no one does or can. Any overall benefit of this goes to those owning property….and the banks… the cost ends up with society when the banks suffer in a recession.
The Govt has (at last!) realized it can actually circumvent this problem by injecting new money via QE, which helps keep the money supply more liquid and doesn’t involve the inequity creating banking circuit. Not that they want to acknowledge the fact for some ideological reason.
As Richard also has pointed out, raising interest rates in a vain attempt to target inflation, reduces the money supply as it will reduce bank lending even further.
Helping the less well of cope with energy payments has to be an immediate target, using QE is a way to do it without raising taxes, though a windfall tax is also necessary.
Worrying.
As Steve Keen notes in ‘Debunking Economics’, the Neo liberals (Tories) are always blind to the source of money in an economy – whether credit or hard cash they couldn’t really give a damn. Just as long as it is there. Just make the most of it (if you are rich or positioned to do so) whilst you can. That’s their motto.
But you can always blame the credit inflation boom on unreasonable wage claims and unions instead – perfect!
It’s not a way to run an economy at all.