Remortgaging fared slightly better, with £6 billion worth being carried out in April – 34,400 remortgages counted – versus £7.6 billion in March, when there were 42,100.
Credit, Collections & Insolvency News
Consumers repaid £7.4 billion debt in April, the largest net repayment since the series began according to the latest figures from the Bank of England’s monthly Money & Credit statistical release data. This is the largest net repayment since records began in 1993 and double that of March, which was the previous record.
The figures show that households have reduced the amount they are borrowing in consumer credit as spending has fallen with COVID-19. New gross borrowing fell to £11.8 billion in April, roughly half its February level. Repayments on consumer borrowing have also fallen sharply, by 19% since February, reflecting payment holidays. On net, the larger fall in gross borrowing meant people repaid £7.4 billion of consumer credit in April, double the repayment in March, which itself was a record repayment. The extremely weak net flows of consumer credit meant that the annual growth rate fell below zero in April, to -0.4%, the weakest since August 2012.
The majority (£5 billion) of net consumer credit repayments were on credit cards, while £2.4 billion of other loans were also repaid in April. The annual growth rate of credit card lending was negative for the second month running, falling to -7.8%, compared with 3.5% in February before borrowing fell. Growth in other loans and advances remained positive, at 3.1%. But this was weak relative to the recent past: in February, the growth rate was 6.8%.
The cost of credit fell in April. For individuals, effective rates on overdrafts fell 15 percentage points.
Mortgage lending dropped from £300 million versus the £4.8 billion seen in March – the lowest net increase since December 2011. The Bank of Enland says that the severity of this drop is because of the larger fall in gross lending than repayments. Gross mortgage lending came in at £14.4 billion in April versus £22.6 billion in the previous month a 36 per cent drop, and repayments totalled £13.9 billion in April. In March they totalled £18.4 billionn – a 24 per cent fall.
Remortgaging fared slightly better, with £6 billion worth being carried out in April – 34,400 remortgages counted – versus £7.6 billion in March, when there were 42,100.
Commenting on the figures Dave Harris, Chief Executive Officer at equity release lender, more2life said “Today’s figures are testament to the cooperation between advisers and lenders in ensuring that customers could continue to access the refinancing solutions they needed throughout April while the market adapted to the Covid-19 outbreak. This same cooperation can still be seen as the housing market begins to return to some sense of normality, with the industry working hard to ensure that both existing and new borrowers, can proceed efficiently during this challenging time.”
“While the later life lending market faced a slightly different set of challenges, it also made great strides by ensuring that remote valuations were possible and independent legal advice could be provided on a remote basis. With equity release increasingly being used to repay mortgages and unsecured borrowing as well as meet other pressing financial needs, this type of essential support could simply not wait until lockdown started to eased at the end of May and physical valuations become possible.”
“With most people under increasing financial pressure, it has never been more important to seek professional, specialist advice. Advisers are best placed to take a holistic view of a client’s finances and help them decide from the range of lending options available. This will ensure that older customers who require financial support during this uncertain period will choose the best option for them not only now, but also for the future”.
Jonathan Sealey, CEO at Hope Capital, said “It’s no surprise that following March’s initial drop, mortgage lending has fallen off a cliff in April, falling to less than a quarter of the levels we’ve seen in the previous six months. Even remortgaging has taken a sharp hit, with volumes down nearly 30 per cent on the same period.”
“Now it’s all about how quickly the market can recover from this. Physical valuations and in-person viewings are resuming and the early evidence is that there has been strong demand since the middle of May when some of the restrictions on movement were eased.”
“There is still strong demand from borrowers and the bridging sector is in a particularly good place to pick this up. By adapting product ranges and showing a flexible approach, bridging can provide solutions where mainstream lenders cannot.”
John Goodall, Landbay’s CEO, said “It will come as a shock to nobody that the amount of mortgage lending has dropped. The shock is not that approvals for house purchases were 80% below levels in February, but that 20% of new house purchases continued to go ahead. The effect of mortgage holidays took full effect in this month with repayments dropping by 26%, with further sign that households are struggling with £800 million of savings withdrawn from ISA accounts in one month.”
“The comparison with the credit crunch cannot be avoided as the level of net mortgage borrowing is the lowest since 2011 and May’s figures are likely to be similar, if not worse. What we hope and expect however is that the recovery following this will be much quicker than it was after the credit crunch. Unlike the credit crunch this is not a lender-led liquidity crisis, now the mortgage industry is a victim, from an economic point of view, as much as any other businesses are. Liquidity is still available and it is already apparent that demand for housing is still there, although people may find it harder to borrow if their circumstances have changed. This time the banks and financial institutions are part of the solution, along with governments and central banks, to help ease the economic burden and keep the wheels turning.”
Richard Pike, Phoebus Software Sales and Marketing Director, sais “The payment holiday scheme, introduced to help borrowers during the Covid-19 breakout, had a marked effect on the mortgage repayment figures in April. Add to that the increased number of reduced repayments and you are looking at a significant amount of additional costs accruing. This is something that will be telling in the coming months, especially if, as is expected, the economy dips further and unemployment rises. It is encouraging to see that, despite a drop in household income for many, consumers are choosing to pay down their other debt as the cost of borrowing fell.”
“The coronavirus crisis shocked the market to a standstill but, now that the mortgage market is moving again and there is an increase in appetite, we should start to see the approval numbers pick up again.”