Consumers made net repayments of £600m in September

30th October 2020

The Bank of England has reported that consumers made net repayments of £600 million in September whilst approvals of mortgages for house purchase increased to 91,500 last month from 85,500 a month earlier, with pent-up demand and the stamp duty holiday cited as reasons for the housing market boom.

September’s figures total marks the highest level in mortgage activity since 2007. Net mortgage borrowing in September was at £4.8 billion, an increase from August’s figure of £3 billion.

Net consumer credit borrowing weakened in September, with households making net repayments £600 million with interest rates on interest-charging overdrafts increasing by an additional 3.5 percentage points, to a new series high of 22.52% in September, while the rates on new consumer credit and credit card borrowing were little changed.

Whilst the overall demand for credit is down,  debt charity StepChange has warned that this should not be taken as a sign of increased household financial wellbeing, with the charity’s latest data suggesting a growing proportion of households are experiencing financial difficulty.

Since May, StepChange has been publishing a monthly breakdown of client trends to try to understand how the pandemic is affecting household debt, and to help focus on the best ways of helping people who are affected.

In September, we gave full advice to 16,000 clients – an increase of more than 3,000 compared to August 2020, and an upward trend StepChange expects to continue as support schemes including payment deferrals and furlough come to an end.

Elsewhere, there are more causes for concern: for the second month in a row the proportion of new clients in employment has decreased from 29% in August to 26% in September, while we saw an increase of clients in receipt of universal credit. 43% of new clients in September were in receipt of this benefit, compared to 40% in August.

Peter Tutton, Head of Policy at StepChange Debt Charity, said “Following two months of consumer borrowing outstripping repayments, this month’s return to net credit repayments should not be seen as an indicator that all is well with household finances. Our research in May, at a time when net borrowing was even further depressed, found that 3.8m people had borrowed to make ends meet since the start of the pandemic. We expect that number that will continue to rise, with StepChange’s latest client data suggesting a growing proportion are experiencing financial difficulty.”

“After months of relatively low client numbers, we are beginning to see red flags appear across the board at a time when support schemes being withdrawn. Against this backdrop, the banking industry must continue to be forgiving to those who find themselves facing difficulty, while the Government needs to step up its support efforts if we are to limit the levels of defaults and keep more families from falling into poverty.”

Commenting on the Bank of England figures Aneesh Varma, Founder and CEO at Aire, said “The Bank of England’s mortgage figures are starting to show the downstream impact of the pandemic on consumers’ day-to-day lives. Having proven their ability to work remotely, people are rethinking their city centre living and accelerating their moves to family friendly locations in the suburbs and countryside.  We are seeing a big behavioural shift here.  Consumers are making very different decisions to those a year ago and putting down new roots for at least the next five to ten years.”

“Outside of the mortgage market, we can see from the Bank of England’s figures that those who can are being more cautious and reducing their use of credit. Consumers have  learned from 2008, they are reducing their costs and being very careful about where they are spending their money.”

“Lenders need to understand that their customers have changed in the last few months. Millions of people are facing significant financial hardship and need more support than before, while others are making very different decisions and will move to providers that are best prepared to understand their needs. There has never been more need for lenders to understand what is happening to their customers, yet many are still struggling to get their contact centres working well enough to even talk to their customers.”

Jonathan Sealey CEO of specialist short term lender Hope Capital, said “The Chancellor has clearly achieved his goal of bringing mortgage borrowing back to pre-Covid levels, with the introduction of the SDLT holiday. And, with mortgage approvals at the highest level for 13 years, house buyers have responded.”

“But the danger is that this rush is becoming a stampede and with only so much bandwidth in the system, it’s likely that buyers will already be losing out due to the delays building up across the house purchasing process.”

“That’s why it’s crucial for brokers and borrowers to consider alternative finance or specialist lending in order to get the deal over the line more quickly. The fact is right now mainstream lenders are unable to meet the needs of borrowers in the time frames they require to seize the opportunities in the market.”

John Phillips, National Operations Director, Just Mortgages and Spicerhaart, said “The housing market has been heating up since July and reached boiling point in September. With many borrowers worried about their finances and in need of sound mortgage advice the market needs good brokers more than ever. On the back of the boom, we are seeing plenty of brokers looking to join Just Mortgages, particularly in the self-employed arena.”

“With the stamp duty holiday deadline looming in the horizon we are seeing the mortgage market begin to cool in October. To keep the market cooking, now is the time for lenders to loosen their criteria. Particularly for higher LTV mortgages to allow first-time buyers to access the market. We are still seeing thousands of eligible borrowers being turned away as, despite stable income and proof they can pay credit reliably, they don’t have the 15% deposit required to purchase their own home.”

Craig McKinlay, New Business Director at Kensington Mortgages, said “The temporary reform of stamp duty and pent up demand has provided a boost for the property market. Despite there being less product choice available, September is traditionally a busy month of activity for the market, and mortgage approvals have shot up to their highest rate since September 2007. However, we believe these results aren’t showing the many first-time buyers and self-employed borrowers who are being left behind in this mini-market boom – unable to take advantage of the stamp duty holiday. Mortgage lenders need to be as flexible as possible to accommodate these individuals and use manual underwriting approaches to assess an individual’s affordability on a case by case basis.”

Dave Harris, CEO of equity release lender, more2life, said “There has been a steady increase in mortgage lending volumes since the peak of the crisis, as today’s findings continue to show. This has been driven in part by people rushing to take advantage of the Chancellor’s Stamp Duty holiday and existing homeowners with higher LTV’s looking to make the most of the attractive rates available by remortgaging.

“Pension pots have been hit hard, while thousands of older workers have lost their jobs and, as a result, many have needed to look at ways to manage their outgoings.  That said, consistently remortgaging – even on attractive rates – is not sustainable over the long-term for most people.”

“Older homeowners who are approaching retirement need to consider how all their assets can support them and equity release can provide over-55 homeowners with the option to unlock a tax-free portion of their property wealth. Indeed, the Equity Release Council reported that £698m of housing equity was unlocked by older borrowers in Q2 alone.”

“However, the first step to financial health for consumers, including those in later life, is developing a long-term plan with a qualified adviser. Professionals can help clients explore the full range of borrowing options in retirement, making recommendations based on the solutions which best meet their specific needs both for the short and long-term.”

The Bank of England figures also showed that private corporates borrowed £700 million from capital markets in September. Small and medium-sized non-financial businesses (SMEs) borrowed £1.6 billion, on net, from banks, while large businesses repaid £5.8 billion.