Consumer Credit in the United Kingdom

2020 IMPACT

Consumer confidence drop results in credit repayments in 2020

The spread of COVID-19 severely affected the card lending market in the UK in 2020. The 3-month lockdown led to the closure of many businesses, which left households with reduced income and financial difficulties.

Uncertain economic outlook causes decline in new loans

Non-card consumer credit lending categories have all been negatively impacted by the consequences of the pandemic, with most categories recording a double-digit decline in terms of new loan applications. Many households prioritised spending on essentials, such as groceries, and put on hold the purchase of durable goods, like household consumer electronics or automobiles.

Unprecedented financial situation leads to the introduction of payment holidays

The UK Government announced the launch of payment holidays in March 2020 to support borrowers needing help. The initial 3-month scheme, which offered a break from debt repayment, was extended to six months until the end of October.

RECOVERY AND OPPORTUNITIES

Economic uncertainty will affect gross card lending

After the sharp fall in gross card lending in 2020, the pandemic is expected to influence lending in the UK in the longer term. Although the market will start to exponentially recover from 2021, total gross card lending will not reach pre-crisis levels until 2025.

Investment in education means this category is least impacted by COVID-19

Besides consumer credit, other lending categories, including auto, durables and home lending, are expected to be negatively impacted by the pandemic. Similarly, gross lending value for most categories is not expected to recover to pre-crisis levels during the forecast period, driven by upcoming recession and, thus, low consumer confidence in borrowing.

Low BoE rate will not be enough to boost consumer confidence in borrowing

As of mid-March 2020, the Bank of England (BoE) base rate stood at 0.1%, the lowest level in a decade.