Latest Bank of England data released shows that households paid back £2.4 billion of borrowing on credit cards, personal loans and overdrafts in the first month of 2021.

The total amount outstanding on credit cards and loans shrank to £199.4 billion, falling below £200billion for the first time since April 2017.

Consumer borrowing fell at its fastest pace since May 2020 in January. The £2.4 billion decline in unsecured lending to consumers was the steepest fall since the £4.5 billion recorded in May 2020. January’s total takes the year-on-year fall to 8.9%, the biggest decline since monthly records began.

Separate figures show that British lenders approved almost 99,000 mortgages in January, down from 102,800 in December, but were line with the average of 100,000 since October 2020. Effective interest rates on new mortgage borrowing fell to 1.85%.Net mortgage borrowing remained robust at £5.2 billion in January.

The ‘effective’ rate – the actual interest rates paid – on interest-charging overdrafts bounced back by 31 basis points to 20.82% in January, close to series high in September 2020 (20.86%). Rates on new personal loans to individuals rose slightly to 5.41% but remains low compared to an interest rate of 7.03% in January 2020. The cost of credit card borrowing rose by 27 basis points to 18.03% in January.

Commenting on the figures Will North, director of core credit for TransUnion in the UK said “In its latest Money and Credit statistics, the Bank of England has revealed that consumers repaid £2.4 billion of credit in January. This is the largest net repayment since May 2020 and a substantial increase on previous months, with consumers having repaid an average of £1 billion per month from September through to December 2020. Mortgage borrowing also remained strong at £5.2 billion in January, with 99,000 mortgage approvals for house purchases. The figures suggest the divide we’ve already seen emerging may well be growing, with the pandemic having impacted people financially in different ways.”

“For those largely unaffected, their ability to repay more debt, thanks to lack of spending and consistent income, is strengthening their financial position. This is borne out by a recent report which stated that nearly a quarter (24%) of UK consumers have saved more money over the course of the pandemic so far. Similarly, our study tracking the impact of COVID-19 on consumer finances found that 61% of households finished 2020 either where they expected to be financially or better off.”

“At the same time, those affected by loss of income are worse off and in many cases utilising government support schemes and payment holidays just to get by. We found that half of households were still reporting a negative financial impact at the end of 2020 and four in 10 (41%) UK consumers overall were concerned about their ability to pay their bills.”

“Lenders will need deeper consumer insights and best-in-class customer management approaches in order to understand their customers’ financial situations and to be able to make informed, responsible lending decisions. With the Financial Conduct Authority (FCA) estimating that over a quarter of UK adults are demonstrating characteristics of vulnerability, lending is likely to be cautious.”

“However, with the government publishing its roadmap for easing lockdown and the vaccine rollout continuing at pace, we can start to see the path to recovery, albeit an uncertain one. As we look forward with hope towards the summer, with the reopening of non-essential retail and the prospect of holidays – even if largely UK-based – we can start to think of the return to normal spending levels. In this new environment, finance providers need to be adapting their risk models and utilising the latest tools and data insights to take a dynamic approach to assessing their customers’ needs.”

Richard Pike, Phoebus Software Sales and Marketing Director, said “The figures from the Bank of England today come as we are reading of more rumoured (leaked) changes for the housing market ahead of the Budget on Wednesday.  In all honesty our market has fared better than many over the past year and January was no exception.  The perfect storm of low mortgage interest rates and the SDLT payment holiday have kept things moving.”

“It is evident that the government is set on its path of moving generation rent into generation buy.  If, as is reported, the new mortgage guarantee scheme is announced on Wednesday more first-time-buyers will find themselves in a better position to move onto the property ladder.  Of course, there is always the question of supply and, with new-build developments well below the government’s target, that may be an issue down the line.  One that may well push up prices.”

“It’s a fine line, as always.  However, the positive is that the housing market is not being left behind in the Chancellor’s plans for recovery.”