Britons borrowed more and saved less last month as fears grow over strain on household finances as debt repayment holidays end
- Bank of England figures revealed £21.3bn was borrowed on cards and loans
- These August figures are up on July when £20.9bn was borrowed
- Surveys from the ONS say more households are turning to borrowing to cover costs and fewer are able to pay unexpected bills
Britons borrowed more on credit cards, loans and overdrafts last month compared to July and saved less, official figures revealed today, amid concerns household finances are increasingly under strain.
Some £21.3billion more was borrowed by consumers in August, up from £20.9billion the month before, although repayments increased slightly, as borrowing and spending continued to return to close to pre-coronavirus levels.
But the increase in the amount borrowed last month, after the country paid back more than it borrowed for four successive months between March and June, comes as data from the Office for National Statistics suggests an increasing number of Britons are finding themselves in financial difficulty.
Payment holidays on bills such as credit cards, loans and mortgages are set to end which could exacerbate the financial woe.
The ONS has found more people are having to use savings to cover their living costs or are turning to debt, while the record sums saved over the last few months have slowed
Survey data published at the start of this month found there had been no improvement in the ability of households to pay unexpected bills and save for the year ahead since the start of July, while the state of some people's finances had worsened.
By the end of July, 36 per cent of those surveyed said they would be unable to save for the year ahead and a third would be unable to pay an unexpected £850 bill.
The percentage of people unable to pay a bill is now at levels last seen in late April, having risen from 26 per cent in mid-June.
The ONS said the 'trend of worsening financial resilience for the overall population continued into early August', and more than one in five parents by the end of July were having to borrow money or use credit more often than they had done before the coronavirus pandemic.
More recent figures published last week found that of the fifth of Britons who said their finances had been impacted by the coronavirus between 16 and 20 September, close to a quarter were having to use savings to cover living costs, 29 per cent were unable to save as usual and nearly a fifth were having to borrow or turn to credit to get by.
These had all increased compared to the same period in mid-August.
Peter Tutton, head of policy at StepChange Debt Charity, said: 'The Bank of England data showing that people continued to borrow more than they repaid on consumer credit in August is just the latest indicator that not everyone is experiencing the same effects in these difficult days.
'Our research has clearly shown that the hardest-pressed households are turning to additional borrowing to make ends meet'.
Recent research from the Office for National Statistics suggests household finances began to worsen in July, with an increase in the percentage of people unable to save or pay an £850 bill
Nearly four in five people who came to StepChange for advice last month were in debt on at least one credit card, up six percentage points on June.
Some 15 per cent of those who came to the charity cited the coronavirus as the reason for their debt and 17 per cent said it was because they had lost their job, although the total number of people in need of advice fell by 11,000 compared to August last year.
Britons saved record amounts of money and cleared a collective £9.4billion off their credit cards between March and June as the coronavirus lockdown saw people unable to spend and government support schemes prop up millions of incomes.
But this honeymoon period, which saw the country become a nation of 'accidental savers', appears to be coming to an end at a time when there are fears millions could be left out of work and hundreds of thousands have to return to making credit card, loan and mortgage payments as payment holidays end.
Data from Experian, one of the UK's big three credit reference agencies, found there had been a 16 per cent rise in credit card applications between May and August, and a further 16 per cent rise between August and 16 September.
There had also been a 30 per cent jump in loan applications over the same three month period, while there had been a 37 per cent increase in August in the number of people checking their eligibility for credit cards, loans or car finance compared to the same month last year.
The amount borrowed by consumers on credit cards, overdrafts and loans increased again in August, but households also paid back more, meaning the net amount borrowed fell to £0.3bn
The figures again suggest consumers are once again beginning to borrow, with the reference agency previously finding that its £14.99 a month Credit Expert customers had cleared close to £2,000 of debt between 23 March and 8 June as they found themselves with more disposable income.
Those needing to turn to credit to make ends meet also face the problem of a higher cost of borrowing.
While the Bank of England found credit card interest rates barely budged last month, the number of available interest-free cards is close to record lows.
There are just 52 zero per cent balance transfer cards and 50 interest-free purchase deals available today, according to Moneyfacts, down from 76 and 70 at the start of this year, respectively.
A survey of lenders in July by the Bank also suggested lenders would be less keen to hand out consumer credit between July and September.
Meanwhile average overdraft rates jumped to a record high of 19 per cent last month, after Britain's banks brought in new borrowing charges of as high as 40 per cent, having previously delayed their introduction following guidance from the Financial Conduct Authority to support borrowers during the pandemic.
Week | % reporting reduced income due to the coronavirus | % using savings to cover living costs | % unable to save as usual | % borrowing or using credit to make ends meet |
---|---|---|---|---|
12 - 16 August | 59% | 18% | 25% | 15% |
16 - 20 September | 65% | 29% | 29% | 19% |
Source: Office for National Statistics |
Month | Amount owed on credit cards | Monthly change | Monthly 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 | £62.3bn | £-1.8bn | -2.5% | -10.5% |
June | £61.9bn | £-0.2bn | -0.3% | -11.3% |
July | £62.3bn | £0.6bn | 1% | -10.6% |
August | £62.3bn | £0.2bn | 0.4% | -10.4% |
Source: Bank of England (seasonally adjusted data) |
Jane Tully, director of external affairs at the Money Advice Trust, the charity that runs National Debtline and Business Debtline, said: 'At National Debtline, we are hearing from people who have real concerns about the future, whilst trying to deal with their immediate financial situation.
'Many are worried about redundancy, and we are hearing from a lot people who have already fallen behind on household bills as a result of the outbreak.
'We have seen the government take bold steps to support jobs and wages, and this – along with payment holidays on credit cards, loans and mortgages – has helped shield many households from the full economic impact of the outbreak.
'We now need further action to help people falling into arrears on a range of household bills – including no-interest loans to help people meet their rent payments, changes to the Support for Mortgage Interest scheme and urgent reform of the way council tax is collected.
'I would encourage anyone worried about their finances to seek free debt advice as soon as possible.'
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