Latest Bank of England (BoE) figures show that consumer borrowing rose in May, outpacing the amount repaid for the first time since August 2020.

Net borrowing rose by £280 million during the month, up from a net repayment of £228 million in April. The report shows that borrowing on credit cards fell but there was a £381 million increase in other forms of consumer credit, such as personal loans.

Car finance deals and personal loans lay behind most of the increase, the central bank said, and came after the rates on new personal loans fell to 5.61%, compared with an interest rate of 7.03% in January 2020.

Credit card borrowers responded to a small increase in interest rates to 17.83% in May by cutting back their borrowing, though not by enough to offset the rise in people taking out car and personal loans.

Within the total figure, credit card lending remained low compared with pre-pandemic levels, with a net repayment of £101 million.

The BoE also revealed that mortgage approvals for house purchases reached 87,500 in May, up from 86,900 in April.  Net mortgage borrowing rebounded to £6.6 billion in May from £3.0 billion in April, but remained below the record £11.4 billion in March. Mortgage approvals for house purchase were 87,500 in May, up very slightly from 86,900 in April, but lower than the recent peak of 103,200 in November 2020.

Seprately Large businesses made net repayments of £1.9 billion of loans in May, with small and medium sized businesses also making their first repayment, of £0.4 billion, in over a year. Private non-financial companies raised £0.6 billion of finance from capital markets in May, compared to a monthly average net issuance of £3.3 billion since March 2020.

StepChange debt charity says that today’s Money & Credit data from the Bank of England showing a return to net borrowing by UK households should give pause for thought about the wider state of household finances.

Following an 8-month run of aggregate net reduction in consumer credit, largely caused by a reduction in borrowing rather than an acceleration in repayment, some commentators have been focusing on the aggregate benign view of UK household finances. Yet this risks underplaying the entrenched debt problems still being experienced by many people, says StepChange.

StepChange’s own client data report for May, published today, finds that some 330,000 people visited the charity’s website, while around 12,500 went through a full debt advice process with the charity. Two thirds of new clients had credit card debt – the most common debt type – while around half had a personal loan, with many other types of consumer credit also featuring among those commonly held by clients.

Nearly one in ten cited Covid as the underlying cause of their debt, but the top reasons remain the same as before the pandemic – lack of control over finances, loss of income, unemployment or redundancy, and illness.

The link between debt and low income is a stubborn one that pre-dates the pandemic and has also been exacerbated by it. A third of new clients are receiving Universal Credit, and a similar proportion still have a negative budget where their basic bills exceed their income even after going through the debt advice and budgeting process. Since the start of the pandemic, 6.3m people who experienced a fall in income have had to borrow to make ends meet – a debt overhang that stands in sharp contrast to the experience of households who have been able to deleverage and save during the pandemic.

At the same time, there are tentative signs that post-Covid debt is also biting some different groups of households. While most StepChange clients are renters, there has been an uptick in the proportion of mortgage holders turning to charity for help, for example – creeping up from 11% of all clients in March to 12% in April and 14% in May, coinciding with the withdrawal of the temporary mortgage support put in place during the pandemic.

Commenting on the BOE data, StepChange Head of Policy, Research and Public Affairs Peter Tutton said “A strong picture is emerging of the two-speed impact of the pandemic on household incomes. There are millions of households on low incomes living on the brink of being unable to make ends meet, or already in problem debt, and for many of these, debt problems have got worse rather than better. It’s vital that public policy doesn’t leave people behind and does focus on getting much-needed support to people who continue to be impacted by Covid-related debt.”

Will North, Director of core credit at TransUnion said “The extension of the stamp duty holiday is a likely factor behind the increase in net mortgage borrowing, which bounced back to £6.6bn in May, up from £3bn the previous month. The stamp duty holiday was extended from 31 March to 30 June, meaning buyers pay no stamp duty on the first £500,000 of a residential property purchase, as long as it’s completed before the end of June. This is seemingly driving an increase in activity as that date draws near. After that, the relief will be tapered until 30 September, meaning a residential property bought for up to £250,000 will be exempt from the tax until that date, which may help sustain activity over the next few months.”

“Consumers have made significant repayments on credit throughout the pandemic, but in May they borrowed more than they paid off for the first time since August last year, with net borrowing at £0.3bn. This is likely due to a combination of factors, with some households spending more as lockdowns ease whilst others are simply struggling to continue paying down debt.”

“Our own research showed that whilst 35% of consumers had been able to increase their savings through the pandemic, 32% of UK households are currently negatively financially impacted, according to our latest Consumer Pulse Study. This polarising impact of COVID-19 is likely to come into sharper focus as financial accommodations come to an end over the coming months, so it’s essential that finance providers have the best possible data and insights at their disposal. Having a comprehensive understanding of an individual’s financial situation will support lenders in making informed decisions about affordability, and in creating tailored customer support plans as we navigate our way forward on the road to recovery.”

Richard Pike, Phoebus Software Sales and Marketing Director, said “With mortgage borrowing bouncing back in May, it is undeniable that the stamp duty extension has added fuel to the fire as people rush to beat tomorrow’s deadline.”

“Almost 60% of adults in the UK are now fully vaccinated, and more than 80% have had at least one dose. With the world opening back up and the thrill of stamp duty 2.0 in its eleventh hour, we will soon see how much amplification this has given the market and the impact greater freedom has on buyer habits.”

“Without the financial incentive of the stamp duty holiday, it will be interesting to see if the housing market cools down in Q4. We are also seeing lending criteria being loosened and high LTV lending becoming more readily available. If there is a housing market correction of any sort, then there are several factors that could cause concern in terms of longer-term arrears performance.”

Karen Noye, Mortgage Expert at Quilter said “Mortgage approvals continue to be sky high at around the 87,000 mark for both April and May but have dropped off from their peak in November 2020 when people were scrambling to take advantage of the stamp duty holiday which was at that time going to end in March. Net borrowing has increased in May to £6.6bn as people soak up the last of the favourable stamp duty conditions before it tapers this month. Once the holiday has fully come to an end in October we may enter into a market where buyers choose to wait and see and the number of people looking to buy significantly reduces.”

“These figures also point to people potentially starting to let their financial guards down again as consumers borrowed more as consumer credit than they paid off in May representing the first time this happened since August 2020. This increased willingness to spend will be a welcome sign for the Treasury and may be a signal of people starting to believe that the worst of the pandemic is over and therefore feel more secure in taking on more debt. With furlough about to end and a long road of economic recovery still to walk this may be somewhat ill-considered.”

“For some time, the housing market has been propped up by government schemes and initiatives like the stamp duty holiday and then 95% mortgage scheme, which has encouraged people to borrow at times where they may have chosen to sit on their hands. Once the government’s helping hand has been withdrawn, we may see people opt for a wait and see approach and mortgage borrowing could plummet. Similarly, part of the reason the market has been so hot as of recent is due to people wanting to move to properties with gardens or home offices in light of the restrictions on movement and working. As things get back to normal this frenzy may start to fade and people feel happier to stay put as cities open back up and outside space is lower on the agenda.”