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Lockdown Brits repay £4.6bn debt and save record £25bn in May

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In the third month of lockdown, consumers repaid £4.6bn in debt and savings increased by a record £25bn in May, official statistics reveal.

Consumer credit borrowing remained lower than usual in May with £4.6bn repaid, down from the £7.4bn recorded in April, but up from the £3.8bn reported in March.

The Bank of England Money and Credit statistics for May revealed that households’ deposits increased by a record £25.6bn, following strong increases in March (£14.3bn) and April (£16.7bn).

However, while consumers are saving record amounts, the interest rate available fell. The effective interest rate on new time deposits fell 11 basis points to 0.87%, while the effective rate on outstanding sight deposits fell 12 basis points to 0.29%, the lowest since the series began in 2016.

Turning to the mortgage market, the statistics showed households borrowed an additional £1.2bn secured on their homes, weaker than the average of £4.1bn in the six months to February.

Mortgage approvals fell back further, to a new low in May of 9,300 – 90% below February’s level and around a third of the trough during the financial crisis.

Laura Suter, personal finance analyst at investment platform AJ Bell, said the figures mask the divide in the UK, with some people who’ve lost their jobs or furloughed struggling financially and taking on more debt.

“The only saving grace for those people is that the cost of debt is falling, with the average cost of new personal loans having fallen from 7% at the start of the year to 5.1% in May –  the lowest on record since the data started in 2016.

“The figures on mortgage lending paint a rocky picture ahead for the housing market, as approvals for new mortgages dropped almost 90% below February. The approvals are now a third of what they were at their lowest point in the financial crisis and show that the housing market may not have the fruitful pipeline some have been predicting.

“Some lenders have tightened up their lending criteria or minimum deposit requirements, for fear of a drop in house prices, while at the same time some households may feel their finances are too precarious to commit to a house move at the moment,” she said.

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