The Bank of England’s latest money statistics has indicated that despite an increase in mortgage borrowing there was still a significant net decline in consumer credit.

The statistics indicate that the amount consumers owed on credit cards and loans fell by a record amount over the last 12 months. A slump in borrowing and spending since March has seen the amount households owe on credit cards and loans fall from £225.3 billion in February to £207.1 billion in June, marking a 3.6% drop on the amount outstanding in June 2019. The reduction in outstanding debt is the largest year-on-year fall since records began in 1994.

The reports show that households repaid £86 million of consumer credit in June, following average monthly repayments of around £5 billion since March. The interest rate on new consumer credit borrowing fell 68 basis points to 4.42% in June, while credit card interest rates fell 42 basis points to 17.94%.

Household’s net borrowing was £1.8 billion in June following large repayments in previous months. The increase can all be accounted for by mortgage borrowing. Mortgage interest rates were broadly unchanged.

Approvals for mortgages for house purchase increased to 40,000 in June, up from the record low of 9,300 in May, but still below February’s pre-Covid level of 73,700.

Meanwhile, businesses raised an extra £10.7 billion of finance in June, almost all from financial markets. SMEs continued borrowing from banks, drawing £10.2 billion of extra loans, while large businesses repaid loans.

Commenting on the trend, StepChange Debt Charity Head of Policy Peter Tutton said “The Bank of England data out today shows large net repayments of credit on the part of the household data, but we shouldn’t make the mistake of thinking that means that household finances aren’t under stress.”

Craig McKinlay, New Business Director at Kensington Mortgages, said “The market is showing strong signs of recovery with mortgage approvals increasing to 40,000 from the record low of just above 9,000 in May. The Chancellor’s stamp duty holiday announcement, combined with upcoming changes to planning regulation, mean we are seeing more stimulus being created to get the market moving again – and next month’s results will hopefully reflect these measures further.”

“Whether you were thinking about buying beforehand or wanting to upgrade your home, the next few months are going to be a prime time to do so. For those restarting their homebuying plans, it’s worthwhile getting in touch with a mortgage broker to help guide you through the process during this time and ensure that you have access to products that are most tailored to your circumstances.”

Jonathan Sealey, CEO of Hope Capital said “Although the June figures are still some way off pre-coronavirus levels, there is bound to be a time-lag as market activity resumes. Overall, there’s encouraging evidence that the property market is rebounding slowly but surely from lockdown. That is in line with our experience at Hope Capital, where we have seen a sharp increase in demand, with enquiries and applications both going through the roof over the last two months.”

“It’s already clear that the ‘new normal’ will present opportunities, particularly in the residential market, to investors looking to meet people’s changing needs in the wake of Covid-19.”

“Recent policy changes regarding the extension of permitted development rights and converting commercial property to residential use, will fuel further demand for specialist finance, alongside what we hope will be a sustained recovery in the mainstream mortgage market.”

“The Stamp Duty holiday announced earlier this month will have a short-term stimulus effect but the Government needs urgently to consider longer-term measures to sustain the property market, which acts as an engine for wider economic recovery.

“Specialist lenders are ideally suited to meet the changing needs of borrowers. The key is to be flexible and go the extra mile to understand and respond to their individual circumstances.”

John Goodall, Landbay’s CEO, said “It is good to see the market bouncing back strongly and house prices holding up as a result of the increasing demand. While the stamp duty holiday doesn’t show in these figures for June, it should continue to help support the recovery and I expect July’s mortgage lending to be almost back to pre-Covid levels of demand.”