Borrowing skyrockets despite looming end of holidays
We always knew it would happen.
While we are all committed to continuing the remarkable cash-storing activities of last year, as store doors opened in the first major easing of the last nationwide lockdown, our portfolios also have it. made.
Having paid off debts to the tune of £ 1.7bn per month on average every month since last April, we are now at £ 0.4bn per month according to the Bank of England.
Consumer credit – the ease of borrowing on everything from store cards to personal loans – is growing 147% a year, accelerating faster than in the seemingly simpler days before the pandemic.
New credit card and personal loan agreements alone are up more than 60% from the same period last year, according to the Finance and Leasing Association.
And a 31% year-over-year increase in store and online credit deals in April means we weren’t just spending our savings when stores opened and delivery services finally took hold. .
Experts estimate that new consumer credit business will continue to grow 14% from the rest of 2021 and an additional 16% in 2022.
It is also the small-scale end of the borrowing spectrum.
In an effort to keep pace with house prices which have risen 9.5% over the past year, defying logic, according to the latest Halifax House Price Index, there are now more mortgage products in circulation than there are. at any time since the start of the pandemic.
A 95% influx of loan-to-value ratio choices and the gradual increase in the amount we can borrow based on income multiples – up to 5.5 or even six times annual salaries – seem to be facing the end. imminent leave.
The regime was still paying most of the salaries of 3.4 million people when the HMRC last counted on April 30.
Meanwhile, while we have spent the last six months observing the six-person rule and booking regrettable flights to Faro while we wait for a definitive return to normal, 215,000 businesses have closed for good.
The number, according to analysis by IT asset disposal company DSA Connect, is also increasing – from 103,785 closings in the last three months of 2020 to 111,145 in the first three months of this year.
An access to information request from the GMB union this week revealed that at least 105,000 potential layoffs were notified to the insolvency department by 1,200 employers between January and April this year.
Just as the last of the big economic props collapses, we seem to increase our appetite for borrowing, sleepwalking in a situation where millions of people owe a lot of money on the back of absurd assumptions with, potentially, no way to pay it back if they lose their income. And we know how it goes.
Anyone who feels that layoffs are weighing on them are of course urged to cut costs in order to build up an emergency fund and pay down the debt. Some experts go further by suggesting cutting household budgets as if the loss of income had already occurred.
If they lose their jobs, those who are currently on leave should be made redundant on the basis of their normal salary, not the level of income they are currently receiving. The leave scheme also has no impact on the notice periods for dismissal.
But to what extent are our fears, or at least nervousness, about household income and our ability to maintain financial balance as the new normal emerges?
After all, there have been strong recoveries recently in all three major sectors of manufacturing, service and construction, and those leave numbers are dropping by about one million people per month.
The latest data available from the Office for National Statistics (ONS) shows a drop in the unemployment rate and an increase in the employment rate even during the third Covid lockdown earlier this year.
Indeed, experts like Ruth Lea, economic advisor for the Arbuthnot banking group, believe that the economy is recovering so sharply that it risks overheating, triggering a rise in inflation that could shock those who have never known qu ‘an ultra low cost. loan.
“All indicators released last week, including the latest Markit surveys, suggest that the economy is recovering sharply,” she said, as she joined calls on the government to rule over its current quantitative easing targets.
“In these circumstances, it is relevant to question the relevance of the current monetary policy, which is very accommodating.
“Given the expected strength of the ‘rebound’, the Bank of England’s Monetary Policy Committee (MPC) should seriously consider reducing the current bond buying program to £ 100 billion, as proposed by [Bank of England chief economist] Andy Haldane, ”she suggests.