UK consumer spending was weak in Q1 reports UK Finance. But as inflation fell, it noted a stop to overall savings levels being run down to cover day-to-day expenses.

Within overall card debt, 50% was interest-bearing in Q1. That is the lowest level since at least 1995. Consumers are paying down their balances and managing their interest through balance transfers.

Mortgage borrowing in Q1 was down compared with the same period the year before. That is despite a growth in mortgage applications at the end of 2023.

This suggested the market might see a recovery in the first half as the applications followed through to completions. However, any sustained recovery has yet to materialise. Market expectations for a base rate reduction have now shifted to later in the year. Therefore, borrowing for house purchase in the first quarter was still down compared with Q1 2023.

For those who did secure a mortgage, the trend of borrowing at longer terms to reduce monthly repayments and help with affordability dipped slightly in Q1 but remained high. 21% of new first-time buyers have extended terms over 35 years.

Consumer spending, saving and borrowing

UK Finance data showed weak spending activity in Q1, particularly for household goods. But spending on travel rose at the start of the year.

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For those who were able to put money into savings, the increase in deposits in notice accounts and cash ISAs continued in Q1 2024 to over £250bn in March.

Meanwhile, overdraft debt continued to fall back in Q1 2024. By March it was at its lowest level since August 1998, at £4.67bn outstanding.

At the same time, credit card debt was 10% higher than in Q1 2023. This is in line with a broadly constant annual growth rate since the end of the pandemic.

Mortgage arrears, possessions

The number of mortgage customers in arrears grew to 110,150 in Q1 2024. But the rate of growth was modest – up from 107,250 cases in Q4 2023. Early arrears cases fell slightly in Q1 2024, indicating any increase in arrears next quarter will again be limited.

Eric Leenders, MD, Personal Finance, UK Finance, said: “Some households were in a better place financially in Q1 this year. But we are not out of the woods yet. Among the more positive signs, we can see that overdraft and interest-bearing credit card debt are at record lows. Many households have stopped using their savings to help with the rising cost of living. However, we know that this will not be the case across all households, and lenders want to support anyone who might be struggling. Cost of living pressures remain, and with 1.6 million mortgages due to come off fixed rates this year, there may be challenges ahead for some.”