Consumers paid off £1.2bn of debt in final month of full lockdown

30th March 2021

Consumers paid off £1.2 billion in credit card debt and overdrafts in the final month of full lockdown according to the latest Bank of England figures.

The figures showed that net repayments on products such as credit cards, personal loans and overdrafts were at the strongest annual rate in 27 years.

The repayment figures are below the average since March last year of £1.8 billion. However, borrowing has still fallen a record 9.9% in a year and card borrowing is down 21% in a year – a record fall. Credit card borrowing fell by a fifth, a new record.

UK consumers repaid debt more than they borrowed, consumer credit borrowing fell by 9.9 per cent annually – marking a new low since records started in 1994, the BoE data found.

During February, Brits paid off £1.2bn of consumer debt. However, the Bank said the figure was slightly smaller than the average of £1.8bn monthly net repayments made since March 2020.

Commenting on the repayment numbers Sarah Coles, Personal Finance Analyst at Hargreaves Lansdown said “Lockdown in February was just too miserable for us to sit tight and count our savings, so we loosened the purse strings a bit and invested in a few lockdown pick-me-ups.”

“We repaid slightly less debt than in January and saved slightly less too. As the lockdown wore on through another cold and dark month, we decided to put our cash to good use and cheer ourselves – and our homes – up a bit instead.”

“Retail sales figures from last week show we poured a small fortune into DIY and garden purchases, so we had a nicer four walls – or four fences – to stare at. However, we didn’t go overboard: savings still continued to build and we paid off large chunks of debt too. Consumer borrowing is down a record amount in a year; at almost 10%.”

Mortgage approvals for house purchase were 87,700 in February: while higher than in February 2020 they have fallen from a peak of 103,700 in November 2020.

Meanwhile, net mortgage borrowing was £6.2 billion in February, the strongest since March 2016.

Commenting on the mortgage figures Richard Pike, Phoebus Software Sales and Marketing Director said “The housing market, fuelled by government incentives, continues to move at a pace. With competition from buyers increasing it really is a seller’s market. This demand is naturally pushing house prices up in most areas, only the capital has seen prices falling as buyers look to escape city life following the pandemic, but the question has to be how much more can prices increase?”

“With the ONS reporting that buyers may need to spend 7.8 times their annual earnings to buy a house in England, and 5.9 times in Wales, the question of long-term affordability raises its head again, at the same time as we are seeing more high LTV products coming to market. Surprisingly, the same report said that average earnings growth in 2020 outpaced house price growth in 60 per cent of districts. So it will be interesting to see how much more demand will push prices upwards. It would be reasonable to think that the ceiling is close and to expect to see house prices level off. However, it is likely to be the second half of the year, when stamp duty returns to normal, arrears levels start to increase and schemes such as furlough are withdrawn, that we will see the true effect on the housing market.”

Whilst Sarah Coles, Personal Finance Analyst at Hargreaves Lansdown said “The number of mortgages approved for home purchases fell back slightly in February, but this was only to be expected in the month before the Treasury confirmed the stamp duty holiday extension. Even then, the total value of mortgages being approved hit their highest in almost five years, so the market was hardly sluggish.”

“Ever since the property market was shut down this time last year we’ve been playing catch up, and there’s every sign that once the holiday extension was announced in March, we’re likely to have seen another flurry of approvals.”

The figures all showed that net bank borrowing by small and medium-sized businesses was £0.4 billion in February, whilst large businesses made net repayments of £0.3 billion.

Lenders have been urged by the Bank of England to keep credit flowing to businesses once the state-backed COVID-19 loan schemes come to an end, warning that withdrawing funding would prove self-defeating.

The Financial Policy Committee (FPC) has warned SMEs will need to finance cash-flow deficits this year and banks must continue to provide support. “It is in banks’ own interest to continue to support the economy by lending to viable, productive businesses. Banks have high levels of capital. This would allow them to absorb very big losses while continuing to lend.”