Consumer confidence sees moderate increase in card spending and unsecured borrowing

3rd September 2021

House purchase lending volumes in June reached the highest monthly level on record, with Q2 2021 house purchase the highest quarterly figures in 13 years according to UK Finance’s latest Household Finance Review. The Q2 Review also highlights that credit card spending and personal loan take-up have increased as the hospitality and entertainment industries reopened and consumer confidence was boosted.

Eric Leenders, Managing Director, Personal Finance said “There was unprecedented demand in the housing market in Q2 2021 as people sought to take advantage of the Stamp Duty holiday, with changes to working and living patterns encouraging more homeowners to use their existing equity, either to move further afield or to fund additional house purchases for themselves or family. With the holiday now in its final tapering phase, demand was expected to decline, however applications towards the end of the quarter and into Q3 remain higher than before the pandemic began, as we continue to witness the ‘race for space’.”

“As Covid-19 restrictions lifted the boost in consumer optimism was evident through modest increases in card spending and in unsecured borrowing.”

“The continuing support provided by government and the banking sector for households’ impacted by the pandemic has prevented significant increases in arrears. As the UK emerges from lockdown and these schemes end most households will be able to resume normal payments. However, for those who are not immediately able to return to full employment, lenders stand ready to help with tailored support to best suit customers’ situations.”

Commenting on the figures Sarah Coles, Personal Finance Analyst, Hargreaves Lansdown said “Hundreds of thousands of people could be left high and dry when the furlough scheme comes to an end, and those who are carrying debts could find themselves in serious difficulty.”

“The ONS Business Insights survey estimates that between 1.6 million and 2 million people were on full or partial furlough at the start of August. On the face of it, if their employer can’t take them on again, they should be able to find work, given there were an estimated 953,000 job vacancies in May to July 2021, a record high.”

“However, in reality, it’s incredibly tough. There’s a real mismatch between the sectors people are on furlough from and the sectors that are recruiting. Not every sales assistant wants to take a pay cut to move into care or retrain as a delivery driver. It’s why NIESR forecasts unemployment will hit 5.4% at the end of the year.”

“It’s no wonder that our research* shows that 54% of people are worried about their debts. Right now, arrears are at low levels, but UK Finance warned that when the furlough scheme ends, those who can’t find work are likely to run into trouble.”

“At the moment, UK Finance says the number of people who are starting to run into trouble with mortgage payments is falling, while the number with more serious problems rises. As the furlough scheme comes to an end, we can expect those facing problems for the first time to rise too.”

“Anxiety about the future goes beyond those who are on furlough too. Our research* found that 54% of people are concerned their income will fall in the future as the pandemic continues to unfold. It’s one reason why despite putting away record levels of savings, we’re too worried to tie the cash up for a period in return for a better rate. UK Finance data shows the money in fixed rate and notice accounts has been falling since the start of 2021 and has hit a record low.”

Whilst Richard Pike, Phoebus Software Sales and Marketing Director, said “As we return to some sort of normality we have to ask ourselves what the future looks like for the housing market?  Although arrears are still low the truth is that we have no idea how many people will be returning to work after furlough comes to an end.  Worst case scenario says that lenders should be prepared to see more people coming into difficulty and have plans in place to help those that are struggling.  There is a lot of recruitment activity in the collections space which reflects this. Having said that the amount of money that people managed to save during lockdown may provide a cushion while the return to work gathers pace and people discover their long-term employment status.”

“There is still plenty of activity at the moment and the economic outlook is better than we could have expected, so we wait to see whether the same will prove to be true for the housing market.”