UK households increased their use of unsecured credit in August while mortgage approvals weakened, producing a mixed lending picture as consumers borrowed more heavily despite borrowing costs remaining elevated.
Bank of England data showed net consumer-credit borrowing increasing to £2.5bn in August from £2.1bn in July, above the previous six-month average of £1.9bn.
Credit-card borrowing accounted for £1.2bn of the monthly flow, up from £0.9bn, while other forms of credit including personal loans and car finance increased to £1.3bn from £1.2bn. The annual growth rate for consumer credit rose to 9.6% from 9.3% in July, with credit-card borrowing growing at 13.3% year on year.
The increase came while unsecured borrowing remained expensive. The effective interest rate on interest-charging credit cards rose to 21.55%, while the rate on new personal loans increased to 9.96%. The effective rate on interest-charging overdrafts fell during the month but remained above 20%.
The mortgage market moved differently. Net mortgage borrowing increased modestly to £4.4bn from £4.1bn, but approvals for house purchases fell to 54,900, below the roughly 60,100 average recorded over the previous six months. Remortgage approvals also slipped to 34,000 from 34,600.
Gross secured lending fell to £23.6bn from £25.3bn in July and remained below its recent six-month average. The figures show that outstanding mortgage lending can continue to increase even when the pipeline of newly approved purchases is becoming weaker.
Business finance strengthened during the same period. UK non-financial companies borrowed a net £4.1bn through bank and building-society loans after £1.9bn in July. Large companies accounted for £3.2bn, while small and medium-sized businesses borrowed £0.9bn. Annual growth in SME borrowing increased to 4.6% from 4.1%.
Across loans, bonds, commercial paper, and equity activity, private non-financial companies raised a net £7.7bn of finance during August after raising close to nothing in July. Businesses also added substantially to bank deposits following withdrawals the previous month, illustrating the volatility that can occur in corporate financing and liquidity data from one reporting period to another.
The household figures contain two distinct signals. Faster unsecured borrowing can support retail and service-sector spending in the near term, particularly if consumers are confident about future income. The same increase can also indicate greater reliance on debt among households facing pressure from essential costs. Aggregate lending data cannot distinguish cleanly between those motivations.
Interest rates make that distinction commercially important. Credit-card borrowing carrying rates above 20% becomes costly when balances are maintained for extended periods, while lenders have to assess whether stronger demand is accompanied by deterioration in affordability or credit quality.
Housing is responding to a different set of pressures. Mortgage approvals tend to precede completed property transactions and are therefore watched as an indicator of future activity across estate agencies, conveyancing, removals, home improvement, and other businesses exposed to housing turnover.
Lower approvals do not automatically imply a sustained downturn, particularly when lending conditions and borrower expectations can change rapidly. August nevertheless left purchase approvals below their recent average despite continued positive net mortgage borrowing.
The Bank of England’s next monthly release will provide evidence on whether the divergence persists. August alone cannot establish whether faster consumer credit reflects stronger confidence, financial pressure, or different behaviour among separate groups of households. It does show unsecured borrowing accelerating while the forward pipeline for mortgage-funded home purchases weakened.
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