United Kingdom

Credit card and loan borrowing is predicted to fall by a record amount

Experts said Britain's borrowing habits 'will have changed permanently' as a result of the coronavirus pandemic, after forecasts estimated credit card and loan borrowing would fall by record levels this year.

Demand for consumer credit would fall 15.9 per cent and Britain's unsecured debt pile would not recover to 2019 levels until 2022, according to the economic forecasting group EY ITEM Club.

However, there are concerns those who need to borrow to get by won't be able to, as banks tighten lending criteria in anticipation of millions of pounds in defaults.

Consumer debt has fallen by record amounts over the last few months as billions has been repaid on credit cards and loans, but banks are less likely to hand it out in the near future

The forecasters also said they expected mortgage lending to grow just 2.6 per cent this year, the slowest rise in half a decade.

Dan Cooper, UK head of banking at EY, said: 'Even assuming the economy bounces back in the short term, we're likely to see very weak growth in loans to home buyers and consumers for some time to come.'

The forecast comes as official figures have revealed record amounts of consumer debt were cleared in recent months.

This came as Britain became a nation of accidental savers thanks largely due to the coronavirus shutting down swathes of the economy and opportunities to spend.

Five years of credit card debt was repaid in just five months, with the amount households owed on credit cards and loans falling from £225.3billion in February to £207.1billion in June, according to the Bank of England.

The 3.6 per cent reduction in Britain's unsecured debt pile between June 2019 and the same month this year is the largest fall since records began in 1994.

Borrowing has recovered a little, with households paying back £86million more than they borrowed in June compared to £7.4billion in net repayments during the height of the lockdown in April, but consumer borrowing remained 'significantly below pre-coronavirus levels', the Bank of England said. 

But although Britain has been saving record amounts since the coronavirus pandemic forced the UK into lockdown in March, households may be trying to wean themselves off of borrowing before the government's furlough scheme comes to an end and they find themselves unemployed, or are otherwise concerned about their job security. 

Plastic purge: How Britons have shunned their credit cards amid coronavirus
Month  Amount owed on credit cards Monthly changeMonthly percentage change Annual percentage change 
January £72.1bn£0.2bn 0.2% 4.3% 
February £71.9bn £0.0bn 0.0% 3.5% 
March £69.3bn £-2.4bn -3.3% -0.3% 
April £64.1bn £-5.0bn -7.2% -7.8% 
May £62.1bn £-1.8bn -2.8% -10.7% 
June £61.6 bn£-0.2bn-0.4% -11.6% 
Source: Bank of England (seasonally adjusted data) 

Andrew Hagger, the founder of personal finance site Moneycomms, said: 'The coronavirus crisis has made many people re-evaluate their spending and savings habits, particularly as the furlough support is now unwinding and unemployment figures are racking up on a daily basis.

'People know we're not out of the woods yet and will continue to cut back on non-essential spending as they worry about future spikes in the virus and how they could be impacted.

'It's been a game changer to such an extent that consumer spending and borrowing habits will have changed permanently for some.'

Consumer borrowing remained below pre-coronavirus levels in June but households paid back £86m more than they borrowed, compared to £7.4bn in April at the height of the lockdown

Sarah Coles, a personal finance analyst at DIY investment platform Hargreaves Lansdown, said borrowing would return to pre-coronavirus levels 'eventually', but the question was 'how long it's going to take.' 

'During lockdown we became a nation of savers, but as soon as we were allowed out, it didn't take long for us to reach for our credit cards', she said. 'Consumer credit repayments fell dramatically in June when we started leaving our homes again. 

Consumer confidence has tanked, and uncertainty and pessimism about the future is likely to keep a lid on consumer spending

Sarah Coles, Hargreaves Lansdown 

'The Bank of England says that during the summer, borrowing is likely to be rising again – all those UK holidays don't come cheap. It expects us to be putting more on existing plastic, and applying for more new credit cards and loans.

'But we're still a long way off 'business as usual'. New borrowing in June was £17.7billion, compared to pre-coronavirus rates of £25.5billion. Consumer confidence has tanked, and uncertainty and pessimism about the future is likely to keep a lid on consumer spending.'

But while EY ITEM Club forecast a record fall in the demand for credit, equally important is that the availability of it for those struggling to get by is predicted to decrease too.

Britain's four biggest banks set aside a collective £9billion in the first half of this year to cover coronavirus-related bad debts, and are unlikely to be looking to hand out even more unsecured debt to households in the near future.

Lenders surveyed by the Bank of England said they expected the demand for credit cards and loans to increase between July and September, but the availability of them to decrease in a blow for those needing to borrow to pay for essentials

Banks told a Bank of England survey they expected demand for credit cards and loans to increase between July and September, but for the availability of it to fall.

The number of interest-free credit card deals has fallen to record lows over the last few months, while banks also expect to tighten their lending criteria and reduce borrowers' credit card limits.

How many customers have taken payment holidays? 


- 157,000 credit card holidays worth £0.7bn

- 106,000 loan holidays worth £0.6bn

- 121,000 mortgage holidays worth £14.9bn


- 65,000 mortgage holidays worth £10.3bn

- 153,000 other payment holidays worth £1.2bn 


- 299,000 credit card holidays

- 234,000 loan holidays

- 472,000 mortgage holidays


- 240,000 mortgage holidays


- 26,000 credit card holidays worth £0.1bn

- 28,000 loan holidays worth £0.2bn

- 239,000 mortgage holidays worth £37.1bn

Source: Banks' half year results 

High street banks are also dealing with hundreds of thousands of payment holidays taken by credit card and loan borrowers, with concerns raised over the interest being racked up over these three-month periods and whether borrowers will be able to return to making repayments.

Britain's biggest bank Lloyds said in its half year results that 'customers who have sought to extend their payment holidays are typically of a lower credit quality and tend to have higher average balances and lower credit scores than customers who have never taken a payment holiday.'

These customers could therefore find it both harder and more expensive to access credit if they need it to pay bills or pay for essentials. 

The Financial Conduct Authority has asked banks how they plan to help customers coming to the end of these payment freezes.

'In light of the wider economic impact which has resulted in job losses and reduced working hours for many, some consumers may find it difficult to manage when agreed payment freezes come to an end', Kelli Fielding, of TransUnion, one of Britain's big three credit reference agencies, said.

'According to our study, more than a fifth of consumers are hoping to extend the provisions in place, whilst four in 10 would like to structure their payment plans so they can catch up gradually.'

She said more than a third of people surveyed by the agency planned to either transfer their existing credit card balance or take out a new card or personal loan to cover any shortfalls in income, provided they were accepted.

'Credit will become less freely available with more people having damaged credit records, as banks will scrutinise applications for finance more rigorously under a tighter underwriting regime', Hagger added.

Peter Tutton, head of policy at StepChange Debt Charity, said that despite Bank of England figures showing consistent falls in borrowing, 'we shouldn't make the mistake of thinking that household finances aren't under stress'.

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