Demand for credit by younger borrowers rises above pre-Covid levels

2nd December 2021

Demand for consumer credit has yet to match the pre-Covid peak seen in January 2020, but the latest Market Pulse from Equifax suggests that rapidly rising applications for credit, more than doubling between November 2020 and August 2021, point to returning financial confidence, especially among the young.

Younger borrowers, in particular those aged 18 to 25, are now making significantly more applications per month for mortgages, credit cards and overdrafts than before the pandemic. In May, total applications overtook the previous peak in January 2020, and have stayed above that water line throughout June, July, and August. By August, there were 12% more applications for credit than in January 2020, and almost four times the level seen in August 2020.

Paul Heywood, Chief Data and Analytics Officer at Equifax UK, said “We should be careful of writing off this growing demand for credit by younger people as a blip, not least because it has lasted all summer. The 18-25 year-old age group have had a hard pandemic, some have managed to save more than usual, others have struggled to achieve their goals, and many it seems are turning to the credit industry to help them make the most of the reopening economy.”

“We can expect some of this demand to taper in Q4 as the Stamp Duty holiday disappears in the rear view mirror, yet with Christmas looming and BNPL booming, we can be fairly sure that young people will continue to enter the credit market en masse.”

Across the wider UK population, overall credit applications are now double the level seen in the low of November 2020. Demand hit a post-pandemic peak in May 2021, as mortgage demand swelled ahead of the first Stamp Duty deadline, and has remained high throughout the summer, even as the government takes away support measures, such as forbearance, furlough, and temporary tax breaks.

Heywood, continued “This summer, we’ve seen consumer borrowing and spending habits edge towards a semblance of life before the pandemic, with demand for mortgages, motor finance, and credit cards all increasing in recent months, despite the Government winding down a number of emergency support measures. This is a positive sign that financial confidence is returning across the UK, even as we look ahead to rising inflation and what seems like an inevitable interest rate rise, which may deter some from borrowing.”

Equifax data also shows that credit card utilisation is on the rise, particularly among sub-prime borrowers, as pent-up demand and the lifting of lockdown restrictions drive consumers to borrow more on existing credit cards. Average credit card utilisation has not changed dramatically during the pandemic, but sub-prime borrowers are now starting to build up credit card balances on new credit card accounts (See chart below).

The lifting of lockdown restrictions coincides with this timeframe, as pubs, bars, cinemas, and restaurants sprung back to life, and non-essential consumer spending increased as a result. Spending on entertainment alone has risen by nearly a third (32%) since mid-May, whilst the booking of flights and holidays has increased by a quarter (25%).