Cautious households curbed summer spending and borrowing
Brits reigned in their spending and borrowing over the summer, while paying off mortgage debt.
Figures from the Bank of England found that consumer credit failed to grow in July for the first time since February, prompting fears that the economic recovery from the pandemic is slowing down.
The bank’s latest Money and Credit report found that in July, overall consumer borrowing was level, with a rise of £0.1bn in loans and car finance offset by the £0.1bn repaid on credit cards. In a typical month before the pandemic, Brits were borrowing £1.2bn more each month.
Households also repaid £1.4bn of mortgage debt in July. Net mortgage borrowing falling has only happened once before in the previous decade. The last time it happened was back in April 2020, when the first lockdown effectively shut the housing market. This time, the stamp duty holiday caused a frenzy in June, which came to a shuddering halt in July.
Mortgage borrowing falling follows record net new borrowing of £17.9bn in June. However, the number of mortgages approved for home purchases – seen as an indicator of future demand – was 75,200. This is down from 80,300 in June, but is higher than pre-pandemic levels.
Savings levels dropped in July to £7.1bn, down from £9.8bn in June, and the peak of £27.6bn in May 2020, but the figure is above the pre-pandemic average of £4.7bn.
The average interest rate on new fixed savings accounts fell to 0.29% – a historic low – while easy access held steady at 0.1% in July.
Laura Suter, head of personal finance at AJ Bell, said: “As the kids broke up from school and summer holidays began we all started spending more and saving less. People saved less in July than in June, with £7.1bn of money put away in the month, a nearly £3bn drop on the previous month. But it’s clear to see why people might decide to get out and spend their money instead of save it, as interest rates on deposits fell yet again to another historic low.
“Despite this rise in spending, people weren’t putting more money on their credit cards and many continued to pay down this debt. Since the start of the pandemic last year households have paid off large sums of their credit card debt, but this started to turn around earlier this year as lockdown eased and everyone got out and spent more. In July net borrowing was zero, compared to an average borrowing figure of £1.2bn a month in pre-pandemic times, showing we’ve not entirely returned to our old spending ways.”
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “In some cases, spending money proved far harder than planned. Uncertainty over changing rules meant many people felt they couldn’t book an overseas holiday, while lack of availability of accommodation in the UK convinced many to stay home. Meanwhile a shortage of computer chips meant there weren’t enough new cars to meet demand, putting the brakes on car financing. And the difficulty of getting builders and materials meant fewer loans for home improvements too.”