Net consumer borrowing increased for the second month in a row, albeit at a lower rate than in July according to the latest Bank of England figures.
The figures show £21.3 billion was borrowed on cards and loans in August, up from £20.9 billion in July, and less was being saved. While the amount borrowed by consumers on credit cards, overdrafts and loans increased again last month, households also paid back more, meaning the net amount borrowed fell to £0.3 billion in August, following a £1.1 billion increase in July.
The interest rate on interest-charging overdrafts increased 4.2 percentage points to 19.00% in August, while the rate on new consumer credit borrowing increased 7 basis points to 4.71%.
Net mortgage borrowing was £3.1 billion in August, similar to July. Mortgage approvals for house purchase increased sharply to 84,700, the highest since October 2007. Effective mortgage interest rates were broadly unchanged.
Meanwhile, private corporates borrowed £2.7 billion from capital markets in August, and borrowed £0.4 billion from banks. Small and medium-sized non-financial businesses (SMEs) borrowed £2.2 billion, on net, from banks, while large businesses borrowed £2.1 billion, after three months of net repayments
Commenting on the figures, Peter Tutton, Head of Policy at StepChange Debt Charity, said “The Bank of England data showing that people continued to borrow more than they repaid on consumer credit in August is just the latest indicator that not everyone is experiencing the same effects in these difficult days. Our research has clearly shown that the hardest-pressed households are turning to additional borrowing to make ends meet, even as the cost of borrowing rises, with the average rate charged on overdrafts in particular now at 19% compared with 10.32% in March before new pricing structures took effect. The Covid landscape reveals ever more clearly the spiralling costs facing those who have to borrow to make ends meet compared with those who don’t.”
Joanna Elson OBE, Chief Executive of the Money Advice Trust, the charity that runs National Debtline and Business Debtline, said “Today’s Bank of England figures show an increase in repayments on borrowing, but this does not reflect the lived reality for millions of households who are struggling to make ends meet.
“At National Debtline we are hearing from people who have fallen behind on essential household bills as a result of the Covid-19 outbreak. Many are trying to deal with their immediate challenges of paying, rent, mortgages, council tax and other bills and are worried about their financial futures.”
“The government has already taken decisive steps to support jobs and wages – we now need further action to prevent households falling into debt on a range of household bills. This needs to include, no-interest loans to help people meet their rent payments, changes to the Support for Mortgage Interest scheme and urgent reform of the way council tax is collected.”
Mark Gordon, Director of Money, comparethemarket.com, said “The almost 13-year high in mortgage approvals last month is likely the result of pent-up demand from earlier in the year when the property market mostly shut down during lockdown. The temporary stamp duty reform has also been a crucial factor in boosting the August figures. For homeowners, rates remain at near historic lows, with plenty of attractive deals still available – including two and five-year fixed-rate deals.”
Jonathan Sealey CEO of specialist short term lender Hope Capital, said “We’ve seen similar patterns across a range of economic data in recent weeks, where the floodgates opened in the mortgage market in the summer and there have been a lot of opportunities for investors particularly in the buy to let market.”
“The stamp duty holiday combined with resurgence in pent up demand has delivered the boost we were hoping for, and that’s reflected in our own business. Comparing the three months from June to August 2020 with the same period last year, we’ve seen new cases rise by 128%.
“So the question is really what happens next, are we on our way back up to pre-Covid levels, or will the coming months look more like a roller coaster than the hoped for ‘V shaped’ recovery.”