UK households paid back a record number of credit card and loan debts during Lockdown, it was announced this week.
Paying off a total of £7.4bn, meant that UK consumers reduced their credit card debts by £5bn, more than double the previous record net repayment of £2.4bn set a month earlier
Outstanding balances on loans fell by a further £2.4bn, taking total consumer credit lending to £64bn, the Bank of England said.
Many borrowers benefitted from the heavy reduction in overdraft interest rates, down to 11 per cent from 26 per centpreviously and many enjoyed payment holidays on other forms of debt such as general loans (one month), car finance (one month) and mortgage holidays (three months).
Other financial experts have attributed this fall to less demand for credit cards and personal loans, driven by the lack of consumerism – with lockdown seeing high street shops closed down, restaurants not open, holidays and weddings postponed and lower or zero car running costs.
With restrictions now easing, we just hope that this trend continues and people do not fall back into bad habits
Lenders and banks have been heavily restrictive and looking to make smarter lending choices, mostly halting lending altogether or only providing to those who are over-eligible. This has resulted in potentially vulnerable customers having less access to finance which may reduce overall consumer debt.
Ian Sims, the founder of Badger Loans said: “It is great to see the UK paying back their debt so efficiently – since having lots of debt and allowing it to build up can cause more problems down the line.”
“The fact that high street shops were closed and people saved huge amounts of money on birthdays, eating out and holidays, plus the fact that private lenders were not lending during lockdown, all signs were pointing towards more disposable income to help pay off existing debts.
“With restrictions now easing, we just hope that this trend continues and people do not fall back into bad habits. There are a handful of short-term lenders offering finance and more will start to over coming months, but people have to use this credit responsibly and avoid jumping back on the debt bandwagon.”
The Bank of England’s data also showed that mortgage approvals fell to their lowest level since comparable records began in 1993.
“Mortgage approvals are likely to snap back too, now that in-person property viewings are allowed,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
“But with mortgage rates having fallen only marginally so far this year, unemployment set to rise and banks intending to restrict the supply of secured credit, we expect mortgage lending to remain at least 10 per cent below its pre-virus peak in the second half of this year.”