Consumer Lending in the United Kingdom

COVID-19 impact on consumer lending

The pandemic has already made a significant mark on the consumer lending market in the UK. Gross consumer lending recorded a double-digit decline in 2020 overall, the result of nearly three months of lockdown, when most loan approvals were suspended, and only essential retail outlets were open.

COVID-19 country impact

On 16 March, large gatherings in the UK were banned, people were required to cease all unnecessary travel and to work from home where possible. On 17 March, travel restrictions were introduced, with the Foreign & Commonwealth Office advising UK nationals against all but essential international travel.

Payment holidays to help debt repayment during and after the pandemic

The unprecedented situation put many customers in an uncertain financial situation, with many forced to furlough, lose their jobs or live on reduced income. Repayment of loans was not an essential expense for many during the challenging months of lockdown; therefore, in order to eliminate the risk of debt accumulation, the UK Government introduced payment holidays for a period agreed by the lender, during which time customers did not have to repay their debts.

Despite low BoE rate, supply and demand of new loans are both down

The Bank of England (BoE) base rate was lowered to 0.1% in mid-March in order to encourage customers to take out loans and stimulate the economy.

Property market hit hard, although mortgage approvals rise after lockdown

The trend towards a sharp decline in new borrowing was also observed in mortgages/housing in 2020 due to the pause in loan approvals during lockdown. As in many industries, the property market was hit hard by the pandemic, and according to Nationwide, house prices started to decline for the first time in eight years in the UK.

What next for consumer lending?

The consequences of the pandemic are expected to have a long-term impact on the UK consumer lending market. After the sharp decline in 2020, gross consumer lending is not expected to recover to pre-COVID-19 level in the five years following the health crisis, primarily driven by low levels of consumer confidence in borrowing.

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