Households’ consumer credit borrowing shrinks at fastest rate on record

Households’ consumer credit borrowing, including credit cards, personal loans and overdrafts, shrank at the sharpest annual rate on record in January, Bank of England figures show.

Consumer credit borrowing contracted by 8.9% annually, marking a new low since records started in 1994.

The decline reflects less new borrowing taking place. Households collectively made £2.4 billion-worth of net consumer credit repayments in January, the largest net repayment since May 2020. £2.2 billion of the total was repayments made on credit cards.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “This lockdown has provided a shot in the arm for saving, switching, and debt repayment. The average figures look promising, but are hiding an awful lot of pain.

“Spending every waking second at home, either coping with loneliness or putting up with demanding families, might have driven many of us to the brink of our emotional resilience, but for an awful lot of people, it has helped them spend less, save more, and build their financial resilience. Saving and debt repayments both shot up in January.”

Ms Coles continued: “The average figures look promising, but averages always hide an awful lot of suffering. There are those who have been managing on lower incomes for months, and are really struggling.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said he doubts that much of the cash stockpiled by some households will filter back into the economy over the next year.

He said many “might top-up their underperforming pensions”.

He added: “Many home-owners face refinancing their mortgages at a higher interest rate this year, unless they pay off some of the outstanding balance in order to drop down to a lower LTV (loan-to-value) ratio. A deteriorating labour market also will persuade households to maintain a large precautionary buffer.

“Finally, households likely will spend some of the cash on imported goods and services – such as cars and foreign holidays, when they are permitted again – thus providing no direct boost to GDP.”

Meanwhile, 99,000 mortgage approvals were made to home-buyers in January.

The Bank’s Money and Credit report said that while this was a little lower than in December (102,800), it was well above the monthly average in the six months to February 2020 (67,900).

There have been reports recently that Chancellor Rishi Sunak could extend the stamp duty holiday which is due to end on March 31 by another three months in this week’s Budget.

A new 5% deposit mortgage scheme is also in the pipeline. Many low-deposit mortgages disappeared at the start of the coronavirus pandemic.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “January may not be a time of year generally associated with a flurry of activity in the housing market, but on the mortgage side, business was robust with approvals and borrowing remaining strong.”

Jeremy Leaf, a north London estate agent and a former residential chairman of the Royal Institution of Chartered Surveyors (Rics), said: “The numbers demonstrate continuing resilience as the overwhelming majority of buyers and sellers determine to press ahead with their moves and take advantage of the stamp duty concession which at the time they believed would end in March.”