Annual debt levels in the UK reduced in 2020 due to pandemic
UK households repaid more debt and credit in 2020 than in any year previously, new figures from the Bank of England show.
Since records were first kept in 1993, 2020 saw more debt repaid, with £16.6 billion net repayments across personal loans, credit cards, student overdrafts and car finance. It’s the first year since 2011 that the annual debt levels of the country saw a net reduction. In comparison, 2019 saw a £13.2 billion net increase.
The reasons for the change unsurprisingly relate to the COVID-19 pandemic, with people stopping commuting, spending less in stores and on leisure, and taking fewer foreign holidays, all activities which are heavily tied to new credit and debt.
December, normally a month of heavy spending on the run-up to Christmas, saw households pay back around £1 billion in debt. The highest month for repayment was April, with £7.2 billion repaid.
The impact of lockdown
These new figures have been announced as the UK economy continues to see a downturn, thanks mainly due to the latest lockdown again stopping consumers from spending on travel, leisure and retail.
While consumer debt is shrinking, business lending continues to rise as companies try to secure the necessary funds to stay afloat and keep trading. Company borrowing reached a record high of £43.3 billion in 2020, while the amount raised through the selling of stocks and bonds also reached a new record of £52.6 billion.
This comes as Rishi Sunak, the Chancellor, faces increased pressure to offer a relaunched package of financial support for both businesses and workers that are impacted by the ongoing issues surrounding the pandemic.
There is an expectation that new plans will be announced soon, although Sunak has expressed a belief that the reduction in consumer debt and improvement in household finances could pave the way for an economic upturn when lockdowns end, with pent-up demand seeing higher-than-average spend on retail and travel.
While these figures on credit cards and loans are seen as positive by some, others argue that they are simply masking the more severe personal financial problems of those hit hardest by Coronavirus. Millions have fallen behind with rent and mortgage payments or fallen into debt management solutions as income has stuttered or disappeared completely.
Property market thriving
Despite that, the property market actually thrived during 2020, with more new mortgages approved in 2020 than in any of the prior 12 years, since just before the 2008 financial crisis. Average house prices rose to a six-year high, driven more by higher-value properties and older customers rather than first-time buyers and younger workers who were impacted more by COVID.
The first lockdown did cause mortgage approvals to crash, but they recovered, resulting in 818,500 new mortgages agreed in the year, an increase of almost 30,000 on 2019.