Households increased their borrowing in May for the first time in eight months, the easing of foreclosure rules coinciding with lower loan interest rates.
Figures from the Bank of England showed the first significant increase in credit spending since last August, as a string of net household repayments ended in May when another Â£ 280million was borrowed from consumer credit than what has been repaid.
Auto finance deals and personal loans accounted for most of the increase, the central bank said, and came after rates on new personal loans fell to 5.61%, from a interest rate of 7.03% in January 2020.
Credit card borrowers responded to a slight increase in interest rates to 17.83% in May by reducing their borrowing, but not enough to offset the increase in the number of people taking out auto and personal loans.
In the total figure, credit card loans remained low from pre-pandemic levels, with a net repayment of Â£ 101million.
Debt charity Stepchange said part of the average increase in borrowing reflected the needs of poorer households who suffered loss of income during the pandemic.
It said 6.3 million people who experienced a drop in income had to borrow to make ends meet – “an over-indebtedness that contrasts sharply with the experience of households who were able to deleverage and save during the pandemic”.
The latest consumer credit figure marked a reversal from April, when a net repayment of Â£ 228million was recorded, reflecting households repaying more than they borrowed.
Laith Khalaf, financial analyst at brokerage firm AJ Bell, said consumer borrowing was starting to revert to “the old normal.”
âThe latest trends in consumer spending show that old habits die hard, unless a lockdown is in effect,â he said.
âBorrowing is on the rise and savings are falling, as the lifting of social restrictions has encouraged consumers to pull out their wallets.
“After a long period of hibernation, it is only natural for consumers to take advantage of the old normal a bit, and many have amassed a large war crate of savings during the pandemic.”
Martin Beck, Senior Economic Advisor for the EY Item Club, said: âConsumers have benefited from further easing of restrictions and greater opportunities for social consumption.
“With many consumers having significantly strengthened their balance sheets during the pandemic, we expect to see rebounds in both spending and demand for credit.”
Separate figures for net mortgages rebounded to Â£ 6.6bn in May, following a low of Â£ 3bn in April, but remain well below the record Â£ 11.4bn in March.
The drop follows the government‘s delayed announcement of an extension of the stamp duty holiday on homes valued under Â£ 500,000 brought in last year.
A sign of future mortgages, the number of mortgage approvals granted to homebuyers edged up in May to 87,500, from 86,900 in April. Approvals fell from the recent peak of 103,200 in November, but remain above pre-February 2020 levels.