Britain’s borrowing habits will ‘permanently change’ as a result of the coronavirus pandemic, experts said, following expectations that credit card and loan borrowing would drop at record levels this year.
Consumer credit demand will fall by 15.9 per cent and Britain’s unsecured debt pile will not rebound to 2019 levels until 2022, according to economic forecast group the EY ITEM Club.
However, there are fears that those who need to borrow to get by will not be able to, as banks tighten lending standards in anticipation of millions of pounds defaulting.
Consumer debt has fallen by record amounts over the past few months as billions have been paid off on credit cards and loans, but banks are less likely to deliver in the near future.
Forecasters also said they expect mortgage lending to grow just 2.6 percent this year, the slowest rise in half a decade.
“Even assuming the economy picks back up in the short term, we are likely to see very weak growth in loans to home buyers and consumers for some time to come,” said Dan Cooper, head of UK banking at EY.
The projections come as official figures revealed that record amounts of consumer debt have been cleared in recent months.
It came as Britain has become a country of accidental savers, thanks in large part to the coronavirus shutting down wide swaths of the economy and spending opportunities.
Five years of credit card debt has been paid off in just five months, with the amount owed to households on credit cards and loans falling from £225.3 billion in February to £207.1 billion in June, according to the Bank of England.
The 3.6 per cent reduction in Britain’s unsecured debt buildup between June 2019 and the same month this year is the largest decline since records began in 1994.
Borrowing recovered slightly, with households paying back £86m more than they borrowed in June compared to £7.4bn in net payments during the peak of the lockdown in April, but consumer borrowing remained ‘well below pre-coronavirus levels’, the bank said. . He said from England.
But even though Britain has been saving record amounts since the coronavirus pandemic forced the UK into lockdown in March, households may try to get out of borrowing before the government furlough scheme ends and find themselves out of work, or feel anxious about it. their job security.
|Month||The amount owed on credit cards||monthly change||Monthly percentage change||Annual percentage change|
|January||72.1 billion pounds sterling||£0.2bn||0.2%||4.3%|
|Walk||£69.3bn||-2.4 billion pounds sterling||-3.3%||-0.3%|
|April||64.1 billion pounds sterling||-5.0 billion pounds sterling||-7.2%||-7.8%|
|mayo||62.1 billion pounds sterling||£-1.8bn||-2.8%||-10.7%|
|Jun||61.6 billion pounds sterling||£-0.2bn||-0.4%||-11.6%|
|Source: Bank of England (seasonally adjusted data)|
Andrew Hager, founder of personal finance website Moneycomms, said: ‘The coronavirus crisis has prompted many people to re-evaluate their spending and saving habits, especially as the rental subsidy is now fading away and unemployment numbers are increasing on a daily basis.
People know we are not out of the woods yet and they will continue to cut back on non-essential spending because they worry about the future surge of the virus and how they might be affected by it.
“It has been such a game-changer that for some, consumer spending and borrowing habits have been permanently altered.”
Consumer borrowing remained below pre-coronavirus levels in June, but households paid back £86m more than they borrowed, compared to £7.4bn in April at the peak of the lockdown.
Borrowing will return to pre-coronavirus levels “eventually,” said Sarah Coles, personal finance analyst at DIY investment platform Hargreaves Lansdown, but the question was “how long will it take.”
“During the lockdown we became a nation of savers, but once we were allowed out, it didn’t take long for us to access our credit cards,” she said. “Consumer credit payments dropped dramatically in June when we started leaving our homes again.
Consumer confidence has plummeted, and uncertainty and pessimism about the future is likely to rein in consumer spending
Sarah Coles, Hargreaves Lansdowne
Over the summer, the Bank of England says, borrowing is likely to pick up again – all those UK holidays aren’t cheap. And you expect us to put more on existing plastic, and to apply for more new credit cards and loans.
But we are still far from “business as usual”. New borrowing in June was £17.7bn, compared to pre-coronavirus rates of £25.5bn. Consumer confidence has plummeted, and uncertainty and pessimism about the future is likely to rein in consumer spending.
But while the EY ITEM Club expects a record drop in credit demand, its availability for those who struggle to obtain credit is expected to decline as well.
Britain’s four largest banks committed a collective £9bn in the first half of this year to cover bad debts related to the coronavirus, and are unlikely to be looking to hand over more unsecured debt to households in the near future.
Lenders surveyed by the Bank of England said they expect demand for credit cards and loans to increase between July and September, but that availability will decline in a blow to those who need to borrow to pay for essentials.
Banks surveyed by the Bank of England said they expected demand for credit cards and loans to increase between July and September, but that availability would decline.
The number of interest-free credit card deals has fallen to record lows over the past few months, while banks also expect to tighten lending standards and reduce credit card limits for borrowers.
How many customers have taken pay holidays?
– 157,000 holiday credit cards worth £0.7 billion
– 106,000 loan clearances worth £0.6 billion
– 121,000 mortgage vacations worth £14.9 billion
– 65,000 holiday mortgages worth £10.3 billion
Another 153,000 paid leave, worth £1.2 billion
– 299,000 credit card holidays
– 234,000 vacation loans
– 472,000 mortgage leave
– 240 thousand holiday mortgage
– 26,000 holiday credit cards worth £0.1 billion
– 28,000 holiday loans of £0.2 billion
– 239,000 holiday mortgages worth £37.1 billion
Source: Banks semi-annual results
The big banks are also dealing with the hundreds of thousands of payment holidays taken by credit card and loan borrowers, with concerns raised about accrued interest over these three-month periods and whether borrowers will be able to return to repayment.
Britain’s largest bank Lloyds said in its semi-annual results that “customers who have sought to extend payment holidays are typically of lower credit quality and tend to have higher average balances and lower credit scores than customers who have never taken paid leave.”
Thus, these customers may find it more difficult and more expensive to obtain credit if they need it to pay bills or pay for necessities.
The Financial Conduct Authority has asked banks how they plan to help customers who reach the end of these payment freezes.
“Given the broader economic impact that has resulted in job losses and reduced working hours for many, some consumers may find it difficult to manage when the agreed payment freeze ends,” Kelly Fielding, of TransUnion, one of Britain’s three largest credit reference agencies.
According to our study, more than a fifth of consumers hope to extend the provisions in place, while four in 10 want to structure their payment plans so that they can gradually catch up.
She said more than a third of people surveyed by the agency planned to either transfer an existing credit card balance or take out a new card or personal loan to cover any shortfall in income, provided they were accepted.
“Credit will become less available as more people have damaged credit records, as banks will scrutinize applications for financing more strictly under a tighter collateral regime,” Hager added.
Peter Totton, head of policy at StepChange Debt Charity, said that despite Bank of England figures showing a steady decline in borrowing, “we shouldn’t make the mistake of thinking that household finances are not under stress”.
That’s five money from the best credit cards
Some of the links in this article may be affiliate links. If you click on it, we may earn a small commission. This helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to influence our editorial independence.