The Bank of England’s latest money statistics reports that households repaid more loans from banks than they took out. A £4.6 billion net repayment of consumer credit more than offset a small increase in mortgage borrowing. Approvals for mortgages for house purchases fell further in May to 9,300.

The repayments on consumer credit dropped to £4.6 billion in May, down from £7.4billion in April.

The analysis also shows that there were just 9,300 mortgage approvals in May, down from almost 16,000 in April and 87% below February’s total.

The interest rate paid by households on new secured borrowing was little changed in May, while the cost of new consumer credit fell to 5.10%, nearly 2 percentage points lower than at the start of 2020.

Meanwhile, corporates borrowed an extra £7.4 billion from banks in May, as well as raising £3.5 billion from financial markets. The borrowing from banks was more than accounted for by a sharp increase in borrowing by SMEs of £18.2 billion, with large businesses repaying £12.9 billion of loans.

StepChange Debt Charity says that the new lending data, while showing a continuing slump in the overall demand for credit, should not be taken as a reassuring sign that all is well in household finances. Those households already indebted are in fact accumulating more debt in the form of missed payments and arrears, and StepChange research suggests that since the beginning of the lockdown period around 4.2 million people have borrowed to make ends meet, most often using a credit card (1.7 million), an overdraft (1.6 million) or a high cost credit product (980,000).

StepChange Director of External Affairs Richard Lane said “The economic effects of coronavirus are amplifying the problems for poorer and more financially vulnerable households, which is the worrying aspect that the aggregate data doesn’t show. Our research suggests that around a quarter of all households have been negatively affected financially, and that over £6 billion of debt directly attributable to the pandemic has been built up among over 4 million people. It’s crucial that public policy recognises the need for exit strategies that give those affected a safe way out of financial difficulty.”

John Goodall, Landbay’s CEO, said “Mortgage borrowing increased in May and we can only hope that we have now turned the corner and will incrementally see demand increase month-on-month.  It will be more challenging for many people to get mortgages however, particularly if they have been furloughed or lost their jobs. This is reflected in the dire situation where mortgage approvals were only a tenth of what they were in February.  What this does mean is that the demand for private rental property is likely to increase as the year progresses.  Those who would ordinarily have bought a property may well be struggling to do so and we have already seen demand from landlords increase sharply in the last month.”

Mark Gordon, Director of money at comparethemarket.com, said “May’s figures show that the economic fallout from COVID-19 continues to negatively impact demand in the housing market. Despite much of the market re-opening last month, combined home purchase and remortgage loan approvals dropped by almost two thirds (65%) when compared with just three months earlier – from a near-record high of 140,000 in February to just 45,000 in May. Although there is still significant economic uncertainty for many, the market remains highly competitive with rates available from as low as 1.24%. Customers should do their research and shop around for the best deals.”

Richard Pike, Phoebus Software Sales and Marketing director, said “When you consider the fact that there were already mortgages in the pipeline before the lockdown in March, you can see that many of the approvals in May were due to lenders flicking the switch and starting the approval process again.  However, when we look forward the figures in the coming months will not only reflect the market shutdown, but also an element of caution as people consider their long term finances.  Unemployment figures are already on the rise and recession is on the horizon, so confidence is going to be hit.”

“As things get back to some sort of normality there will undoubtedly be calls for a stamp duty cut to give the market the boost it needs.  However, with the treasury’s coffers severely depleted that is highly unlikely.”