Experts said Britain’s borrowing habits will be “ permanently changed ” as a result of the coronavirus pandemic, after estimated credit card and loan borrowing rates fell by record levels this year.
According to the EY ITEM Club economic forecast group, demand for consumer credit would fall 15.9 percent and Britain’s unsecured debt stack would not recover to 2019 levels until 2022.
However, there are concerns that those who have to borrow to make ends meet won’t be able to as banks tighten loan criteria in anticipation of millions of pounds in default.
Consumer debt has fallen by record amounts in recent months as billions have been repaid on credit cards and loans, but banks are less likely to dispense them in the near future
The forecasters also said they expected mortgage loans to grow by just 2.6 percent this year, the slowest increase in half a decade.
Dan Cooper, head of banking at EY in the UK, said: “Even if the economy recovers in the short term, we are likely to see very weak growth in loans to homebuyers and consumers in the near future.”
The forecast comes because official figures have revealed that record amounts of consumer debt have been settled in recent months.
This came when Britain became a nation of unintentional savers, thanks in large part to the coronavirus stopping parts of the economy and the ability to spend money.
Five years of credit card debt was paid off in just five months, with the amount owed by households on credit cards and loans decreased from £ 225.3 billion in February to £ 207.1 billion in June, the Bank of England said.
The 3.6 percent decline in Britain’s unsecured debt stack between June 2019 and the same month this year is the biggest drop since the records began in 1994.
Lending has recovered somewhat: households paid back £ 86 million more than they borrowed in June, compared to £ 7.4 billion in net payments at the height of the lockdown in April, but consumer loans ‘remained’ significantly below the level of before the corona virus, ‘said the Bank. of England said.
But while Britain has saved record amounts since the coronavirus pandemic forced the UK into lockdown in March, households can try to forgo borrowing before the government leave scheme ends and they become unemployed or otherwise worried about their job security.
|Month||Amount due on credit cards||Monthly change||Monthly percentage change||Annual percentage change|
|January||£ 72.1 billion||£ 0.2 billion||0.2%||4.3%|
|February||£ 71.9 billion||£ 0.0 billion||0.0%||3.5%|
|March||£ 69.3 billion||£ -2.4 billion||-3.3%||-0.3%|
|April||£ 64.1 billion||£ -5.0 billion||-7.2%||-7.8%|
|May||£ 62.1 billion||£ -1.8 billion||-2.8%||-10.7%|
|June||£ 61.6 billion||£ -0.2 billion||-0.4%||-11.6%|
|Source: Bank of England (seasonally adjusted data)|
Andrew Hagger, the founder of personal finance site Moneycomms, said: “ The coronavirus crisis has led many people to reevaluate their spending and saving habits, especially as leave support is now declining and unemployment rates are rising daily.
‘People know we’re not out of the woods yet and will continue to cut back on non-essential spending as they are concerned about future spikes in the virus and how it might be affected.
“It has been so much of a game changer that consumer spending and borrowing habits have permanently changed for some.”
Consumer loans remained below pre-coronavirus levels in June, but households paid back £ 86 million more than they borrowed, compared to £ 7.4 billion in April at the height of the lockdown.
Sarah Coles, a personal finance analyst at DIY investment platform Hargreaves Lansdown, said borrowing would “ eventually ” return to pre-coronavirus levels, but the question was “ how long is it going to take. ”
“During the lockdown, we became a nation of savers, but once we were allowed out, it wasn’t long before we took our credit cards,” she said. “Consumer credit repayments fell dramatically in June as we started to leave our homes.
Consumer confidence has fallen and uncertainty and pessimism about the future are likely to put pressure on consumer spending
Sarah Coles, Hargreaves Lansdown
The Bank of England says borrowing is likely to rise again in the summer – all those UK holidays aren’t cheap. It expects us to put more on existing plastic and apply for more new credit cards and loans.
‘But we are still a long way from’ business as usual ‘. New loans in June were £ 17.7 billion, compared to pre-coronavirus rates of £ 25.5 billion. Consumer confidence has fallen and uncertainty and pessimism about the future are likely to put pressure on consumer spending. ‘
But while EY ITEM Club predicts a record decline in credit demand, it’s equally important that its availability for those struggling to make ends meet is also expected to decline.
Britain’s four largest banks have collectively set aside £ 9 billion in the first half of this year to cover coronavirus-related bad debts, and are unlikely to want to dish out any more bad debt to households in the near future.
Lenders surveyed by the Bank of England said they expected demand for credit cards and loans to increase between July and September, but their availability would diminish in one fell swoop for those needing to borrow to pay for essentials
Banks told a Bank of England survey that they expected demand for credit cards and loans to increase between July and September, but their availability would decline.
The number of interest-free credit card contracts has fallen to record highs in recent months, while banks also expect to tighten their credit criteria and lower borrowers’ credit card limits.
How many customers have taken paid days off?
157,000 credit card vacations worth £ 0.7 billion
106,000 days of vacation worth £ 0.6 billion
121,000 mortgage vacations worth £ 14.9 billion
– 65,000 mortgage holidays worth £ 10.3 billion
153,000 other paid vacation days worth £ 1.2 billion
– 299,000 credit card holidays
– 234,000 loan holidays
– 472,000 mortgage holidays
– 240,000 mortgage holidays
26,000 credit card holidays worth £ 0.1 billion
28,000 vacation days worth £ 0.2 billion
239,000 mortgage vacations worth £ 37.1 billion
Source: half-yearly results of banks
High-street bankers also face hundreds of thousands of borrower and borrower payment holidays, with concerns about the interest accruing during these three-month periods and whether borrowers will be able to repay.
Britain’s largest bank, Lloyds, said in its half-year results that “ customers who have tried to extend their payment vacation tend to have lower credit quality and typically higher average balances and lower credit scores than customers who have never taken a payment vacation. ‘
These customers may therefore find it both more difficult and more expensive to access credit when they need it to pay bills or for essentials.
The Financial Conduct Authority has asked banks how they plan to help customers who come to the end of this payment freeze.
“ In light of the broader economic impact that has resulted in job losses and shorter working hours for many, some consumers may find it difficult to make ends meet when the agreed payment freeze ends, ” said Kelli Fielding of TransUnion, one of the major three credit reporting agencies, said.
“According to our survey, more than a fifth of consumers hope to expand the provisions, while four in ten want to structure their payment plans so that they can gradually catch up.”
She said more than a third of those polled by the agency planned to either transfer their existing credit card balance or take out a new card or personal loan to cover any income shortfalls, provided they were accepted.
Credit will become less freely available as more people have damaged credit records as banks will scrutinize funding requests more rigorously under a stricter underwriting regime, Hagger added.
Peter Tutton, head of policy at StepChange Debt Charity, said that despite Bank of England figures showing a consistent decline in loans, “ we should not make the mistake of thinking that household finances are not under pressure. stand’.
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