New consumer credit borrowing returned to normal levels in July, but mortgage borrowing remains below the levels seen prior to the Covid-19 pandemic.

The latest Bank of England Money and Credit statistical release shows that total household net borrowing reached £3.9 billion for the month of July 2020. This figure is the total for both mortgages and consumer credit, and the equivalent figure for June was £2 billion.

Looking specifically at consumer credit, net borrowing in July was £1.2 billion and this has been heralded as a return to ‘pre-Covid’ levels of borrowing. It ends a four-month period where UK consumers had been making net repayments on their consumer credit agreements in each month.

When the pandemic took hold in late March, many firms decided to restrict their lending at that time, for example some were only offering loans to key workers.

Total household debt repayments in July, however, were still 20% below the levels seen prior to the pandemic.

The average interest rate offered on new personal loan agreements in July was 4.64%, up from 4.42% in June. The rates on credit card borrowing were unchanged at 17.94%.

Mortgage borrowing remains some way below pre-coronavirus levels, even though net mortgage borrowing in July increased to £2.7 billion, up from the previously announced figure of £2.4 billion in the previous month. The Bank says that the average figure was £4.2 billion for the six months to February 2020 and that it would consider this to be the ‘pre-Covid level’ of mortgage borrowing.

The total number of approvals of mortgages for house purchases during July was 66,300, whereas this was 73,700 in February, which is considered to have been the last full month that was largely unaffected by Covid-19. However, the approvals figure has risen by as much as 66% compared to June’s figure of 39,900 and is more than seven times higher than May’s figure of 9,300.

Re-mortgage approvals in July were approximately 36,000 and this figure is largely unchanged from June.

Mortgage interest rates remained largely unchanged in July when compared to June.

Some might see the figures as a sign of economic recovery, but others might see cause for concern, asking whether UK consumers can really take on an increased debt burden given the likelihood of job losses in the coming months.

Commenting on the results, StepChange Debt Charity head of policy, research and public affairs, Petter Tutton, said:

“For the first time in some months we are seeing household borrowing outstrip repayments, at a time when emergency support measures are winding down. It’s absolutely vital that we see ongoing support to help people get through the next period, whether they are in employment or not, if we are to avoid entrenching problem debt as a long-term legacy of the pandemic.”