Borrowing costs are rising in the UK – but households are taking on more debt

UK households are taking on debt at the fastest pace in around two years, even as borrowing costs show signs of rising again.

Latest figures from the Bank of England show consumer credit increased by around £1.6bn in a single month, with annual growth running close to 9%. Credit card borrowing is one of the main drivers.

At the same time, the wider cost of borrowing is under pressure. Long-term UK government borrowing costs have climbed to their highest level since the late 1990s - a shift that typically feeds through into mortgage rates, loan rates and other forms of credit.

Why borrowing is rising in the UK

The increase in borrowing suggests many households are relying more on credit to manage everyday costs, which is not surprising bearing in mind the UK economy.

While inflation has eased on paper, spending pressures remain across essentials like food, rent and energy. For some, credit cards, loans and overdrafts are being used to cover shortfalls, as a last resort, alongside being called in for emergencies as families are forced to live with no safety margins.

Data shows unsecured borrowing - including credit cards and personal loans - is now growing at its fastest pace in around two years, signalling a shift back towards credit.

Why borrowing costs are going up

Even without a major change in the base rate from the Bank of England, borrowing can still become more expensive.

That’s because lenders don’t just look at the base rate - they also factor in market conditions, including government borrowing costs and inflation expectations.

In practical terms, this means:

• Mortgage rates can rise or stay higher for longer

• Personal loan deals may become less competitive

• Credit card interest remains high

Currently, average credit card interest rates are still above 30%, making them one of the most expensive ways to borrow.

How rising borrowing costs could affect you

For many households, the impact will be gradual rather than immediate - but it can still add up.

You may notice:

• Higher monthly repayments when remortgaging

• Increased costs if you carry a credit card balance

• More expensive borrowing for new loans or purchases

The key issue is that borrowing more while costs are rising can put extra pressure on monthly budgets, and it's difficult to control if you're not on a fixed rate.

What to do if borrowing is getting more expensive

If borrowing costs continue to rise, there are practical steps you can take to stay in control:

Check your interest rates
Look at what you’re paying on credit cards, loans or overdrafts so you know the full picture.

Prioritise high-interest debt
Focus on paying down borrowing with the highest rates first, such as credit cards. There are calculators out there that can help you make this decision, if you find the numbers bamboozling. If you're doing minimum payments, know exactly how much of that goes off the amount owed, and how much is just interest - that will help you focus and see where a small uplift in payments can have the biggest impact.

Review your options
You may be able to switch to a better deal, although offers are less competitive than in previous years.

Plan ahead for changes
If your mortgage or loan deal is ending soon, start preparing early for potentially higher repayments.