16Mar

UK consumers once again made significant debt repayments during January 2021, according to the latest Money and Credit Report from the Bank of England. 

 

The net repayment during this month was £2.4 billion, the largest monthly figure since May 2020, with net repayments on credit cards accounting for £2.2 billion of this. The average monthly net repayment between September and December was £1 billion, so the January figure is more than double this average. 

 

The annual growth rate in consumer credit borrowing is once again at a record low level. This index, which started in 1994, currently stands at minus 8.9. When we look solely at credit cards, the growth rate is even lower, at minus 19.4%, and again this is a record low rate. 

 

January did see some small increases in the interest rates being charged to customers. The effective rate on interest-charging overdrafts increased by 31 basis points to 20.82%, the average rate on a new personal loan rose slightly to 5.41% and the cost of credit card borrowing rose by 27 basis points to 18.03%. 

 

The Bank says that “the mortgage market remained relatively strong in January.” UK mortgage customers borrowed £5.2 billion secured on their homes during the month, which is significantly higher than the monthly average of £4 billion from the six months prior to the start of the coronavirus pandemic. 

 

The number of mortgage approvals for a house purchase fell slightly to 99,000 and the number of re-mortgages also decreased by a small amount to 32,400. However, the 99,000 figure is continuing evidence of a robust mortgage market, given that the pre-pandemic monthly average was just 67,900. 

 

Effective interest rates on new mortgages fell by five basis points to 1.85%. The low point here was the 1.72% recorded in August of last year. The effective rate on mortgages in force fell to a record low of 2.09%. 

 

The net flow of funds into deposit accounts remained very strong in January, at £18.5 billion. The pre-pandemic monthly average here was just £4.8 billion. This has occurred despite the effective interest rate on new time deposits with banks remaining at 0.42%, the same as in December. As with so many of the figures in recent Money and Credit reports, this is also a record low. 

 

John Phillips, national operations director at Just Mortgages and Spicerhaart, said:  

 

“The strength of borrowing demonstrates how the market is still defying the wider economic situation. With another lockdown imposed, savings for those lucky enough to still be in employment are rising, and faced with more time at home, there will be more and more people considering a move. 

 

“The mortgage market should continue to be the shining beacon of hope for the economy in 2021.” 

 

John Goodall, chief executive at buy-to-let lender Landbay, said:  

 

“Although mortgage approvals are down slightly in January from December, they are on par with the highs of 2008 just before the global financial crisis. Mortgage borrowing is also high for January, again buoyed by the stamp duty holiday.”