UK households, locked down in April, cut debts by most on record

[blackhole]

https://uk.reuters.com/article/uk-health-coronavirus-britain-economy/uk-households-locked-down-in-april-cut-debts-by-most-on-record-idUKKBN23912R?il=0

Interesting indeed, given Amazon etc were still delivering.

A few have speculated that those who receive fiscal help wouldn't necessarily spend straight into the economy, but reduce existing debts.  Well here's the first sign of that.

Edited June 2, 2020 by blackhole

[winkie]

Am sure more will be looking to pay down debts, avoiding high overdraft and credit card fees/interest, how many hours do people work a week to pay that? Making everything you buy more expensive.....quite a few will be doing things very differently including spending less on extras that have not been missed......they will realise family, health and nature worth investing in, things money can't buy.....the real things that do matter.......

[Huggy]

I've saved so much money over lockdown, and most importantly time not commuting (half of that on the hated tube), that this is quite unsurprising yet still very good news.

Maybe the very threat of not having a job has spurred people into becoming a bit more frugal. Or, as I suspect, they haven't had the chance to spunk it on stuff.

[captainb]

1 minute ago, Huggy said:

I've saved so much money over lockdown, and most importantly time not commuting (half of that on the hated tube), that this is quite unsurprising yet still very good news.

Maybe the very threat of not having a job has spurred people into becoming a bit more frugal. Or, as I suspect, they haven't had the chance to spunk it on stuff.

That and i know people who consider their £4k overdraft a target each month.

I suspect some of this debt is those people "paying down their overdraft" by not spending.

Once the shops/bars/restaurants open wouldn't be shocked if they used it again. We will see

[Andy T]

Could be cynical and say that the average bank balance has probably moved from £3.21 to £9.63

They do give mortgage holidays a mention but the unpaid debt there (& increased interest) is not accounted for.  It's all well having reduced overdrafts but your mortgage is behind by several hundred or a few thousand it's not really a net debt reduction.

[regprentice]

The Independant reports this with a few more numbers - the £7.4bn number reuters reports is March and April combined. 

Consumers collectively reduced their credit card debt by £5bn, more than double the previous record net repayment of £2.4bn set a month earlier. Outstanding balances on loans fell by a further £2.4bn, taking total consumer credit lending to £64bn, the Bank of England said.

The BoE paper is below. 

Surprised no one reported the 100Bn increase in deposits in the same article. 

https://www.bankofengland.co.uk/statistics/money-and-credit/2020/april-2020

Key points:

• UK households and businesses are continuing to increase their deposits in banks and building societies. Sterling money holdings of households, non-financial businesses, and financial businesses rose by £37.3 billion in April, following an increase of £67.3 billion in March.
• Households and private businesses have been repaying loans from banks, on net, but corporates have accessed significant funds through corporate bond and commercial paper issuance. Households repaid £7.4 billion of consumer credit, on net, in April, the largest net repayment since the series began.
• The cost of credit fell in April. For individuals, effective rates on overdrafts fell 15 percentage points. The interest rate on new fixed-rate mortgages was little changed, but floating-rate mortgage borrowing rates fell by 46 basis points. The interest rate paid on new borrowing by businesses fell by 10 basis points, with larger falls on rates for SMEs.

Edited June 2, 2020 by regprentice

[Gigantic Purple Slug]

To be fair, if people can't go shopping, can't go out to eat, can't purchase cars, can't get their house improved, and don't want to book holidays, what are they going to spend their money on ?

A lot of people on furlough I believe took the opportunity to DIY, but that normally is low spend on materials compared to labour.

[blackhole]

3 minutes ago, Gigantic Purple Slug said:

To be fair, if people can't go shopping, can't go out to eat, can't purchase cars, can't get their house improved, and don't want to book holidays, what are they going to spend their money on ?

Ecommerce doors were still open, albeit a little slower than usual.  My international shipments have been arriving at record speed, though ? 

But yes, fair point, I'm just surprised so much went to debt repayment.... lets see how this trends out.

[zugzwang]

9 minutes ago, Gigantic Purple Slug said:

To be fair, if people can't go shopping, can't go out to eat, can't purchase cars, can't get their house improved, and don't want to book holidays, what are they going to spend their money on ?

A lot of people on furlough I believe took the opportunity to DIY, but that normally is low spend on materials compared to labour.

Couldn't even throw money away at the bookies.

[Sour Mash]

54 minutes ago, Huggy said:

I've saved so much money over lockdown, and most importantly time not commuting (half of that on the hated tube), that this is quite unsurprising yet still very good news.

Maybe the very threat of not having a job has spurred people into becoming a bit more frugal. Or, as I suspect, they haven't had the chance to spunk it on stuff.

... I think it's the latter.

 

That said, I've saved plenty of petrol money and also a ton of cash that I normally spend on pre-packaged/takeaway food when I'm working.  And money from not eating/drinking out.   Probably a typical experience for many - there simply isn't the same sort of day to day expenditure when you work from home.

 

Whilst that means there's disposable income when things open up again, it also means that all that spending has been taken out of the current economy probably contributing to a lot of businesses going to the wall.

[erat_forte]

Isn't this just proof that most of the "economy" is people out and about, mindlessly buying impulse purchase they don't need, and are barely aware of?

Takes more deliberate thought and decision making to order the same piece of mindless tat on Amazon or Ebay than while browsing in a shop

[byron78]

Surely a lot of this is simply people not adding new debt to credit cards? Bill paid at end of month, with no new spending on top = debt reduction.

[shlomo]

18 hours ago, Gigantic Purple Slug said:

To be fair, if people can't go shopping, can't go out to eat, can't purchase cars, can't get their house improved, and don't want to book holidays, what are they going to spend their money on ?

A lot of people on furlough I believe took the opportunity to DIY, but that normally is low spend on materials compared to labour.

Me, I have saved nearly all my salary, and I have spent £50 on diy, and I intend to buy paint soon to paint a wall

[winkie]

18 hours ago, captainb said:

That and i know people who consider their £4k overdraft a target each month.

I suspect some of this debt is those people "paying down their overdraft" by not spending.

Once the shops/bars/restaurants open wouldn't be shocked if they used it again. We will see

Well....more fool them @ 40% apr.......many are actively asking for a reduction to the limit, new lower target = extra money to spend.

[winkie]

14 minutes ago, byron78 said:

Surely a lot of this is simply people not adding new debt to credit cards? Bill paid at end of month, with no new spending on top = debt reduction.

Paid each month in full by DD, don't even have to think about it.....all the benefit of a card with no interest to pay, use what you save to save.

[fatspanner]

I'm one of those who lived in an overdraft for a considerable time and had a couple of credit cards with a few thousand owed. This was due to personal circumstances and the occasional stupid purchase of unneeded tech. I started paying these down last year and the lockdown has accelerated this immensely. Overdraft gone, credit cards mostly paid off except for small 0% balances. Saving £250 a month on fuel and popping out for convenience lunches. People are still spending online. I have a small online business running alongside my main job and that's seen a 250% increase in orders since lockdown which is helping to build a nice house deposit. I've been told I'll be working from home for the foreseeable future as office space is limited. 

[winkie]

41 minutes ago, erat_forte said:

Isn't this just proof that most of the "economy" is people out and about, mindlessly buying impulse purchase they don't need, and are barely aware of?

Takes more deliberate thought and decision making to order the same piece of mindless tat on Amazon or Ebay than while browsing in a shop

Put it in the basket wait a while, drops out again.....all the fun of shopping without buying anything....... buy when can remember what it was that was so important and necessary to buy last week, the rest did I really want to buy that.......window shopping, look don't touch.

[robmatic]

19 hours ago, blackhole said:

https://uk.reuters.com/article/uk-health-coronavirus-britain-economy/uk-households-locked-down-in-april-cut-debts-by-most-on-record-idUKKBN23912R?il=0

Interesting indeed, given Amazon etc were still delivering.

A few have speculated that those who receive fiscal help wouldn't necessarily spend straight into the economy, but reduce existing debts.  Well here's the first sign of that.

Aside from the psychology of people preparing for recession and so deliberately paying down debts and overdrafts, there hasn't been a lot of opportunity for discretionary spending. All that money that people would usually spend out on the lash hasn't been put on plastic, and the shops have been closed.

[byron78]

1 hour ago, winkie said:

Paid each month in full by DD, don't even have to think about it.....all the benefit of a card with no interest to pay, use what you save to save.

Yep, I think a lot do this.

I've never "needed" credit, but have always used C Cards in this manner for protection/benefits.

I suspect most are a month behind on spending in much the same way.

 

[NoHPCinTheUK]

So, once again, public money being spent towards the clearing of private debt. That’s what I am reading here. Millions of people on the gov pay list using the money the clear their debt. Sick of this. 

[Tulip_mania]

3 hours ago, Neapolitan said:

So, once again, public money being spent towards the clearing of private debt. That’s what I am reading here. Millions of people on the gov pay list using the money the clear their debt. Sick of this. 

Hurts bank profits if high interest credit is paid off.

But essentially, there is very limited new borrowing, except BBLs, so if most people are still paying their Credit Card, Mortgage, Car, Personal Loan at about the same rate as before, then borrowing has to be going down. I'm aware of people with a positive balance on their credit card which had a holiday refunded onto it.

This is I suspect why the Nationwide doesn't want savings, they simply can't lend the money as when it's not possible to spend, no-one wants to borrow.

[winkie]

22 hours ago, byron78 said:

Yep, I think a lot do this.

I've never "needed" credit, but have always used C Cards in this manner for protection/benefits.

I suspect most are a month behind on spending in much the same way.

 

I suspect a lot do, but a lot either don't know a DD can be set up or do it themselves each month.....there are reasons the facility is not advertised widely......money is made from 1st class debt and forgetfulness.?

[Bugger BTL]

I don't find this particularly surprising. Yes, Amazon etc were still delivering, but you'd have to essentially be seeking it out, and clearly a lot of discretionary spending on items rather than socialising and experiences is relatively unplanned.

People have spent more on discretionary items during lockdown, so for example if you're flogging back garden trampolines or hot tubs, it's been a successful couple of months for you. But you have to measure that against spending to socialise, travel and grooming, all of which has essentially stopped, and things like clothing that people are still buying if needed but are much less likely to want to spend unnecessary cash on.

The refunded holidays point is a good one too.

[elephant]

On 02/06/2020 at 14:15, blackhole said:

Ecommerce doors were still open, albeit a little slower than usual.

Depends what the products are.  My online business supplies mostly arty/crafty products and we’ve just had our 2 busiest months ever in 10 years of trading.  Lots of parents buying stuff for bored kids, but we also sell wholesale to other businesses, some who resell, others who use the products to create their own products to sell on.  It’s only a small family run business with an annual turnover in the mid six figures but I’m aware of other much larger businesses who have been equally busy or busier.

Our collection postman has moaned all the way through about the increase in parcels he’s been picking up from every single one of his customers.  Royal Mail were dealing with volumes way higher than the busy Christmas periods.

Its slowed a bit since lockdown was relaxed a couple of weeks ago but our sales are still higher than pre-lockdown.

I guess for some people, they’re not happy unless they’re spending.  Can’t go out and spend - spend it on online crap instead.  Although I am very grateful for them spending it on my crap because in March I thought my business was going to be dead in the water.  I do however fully expect it to go South again as soon as furlough pay dries up and job losses start.

Edited June 4, 2020 by elephant

[Bugger BTL]

I think of myself as a fairly savvy spender but I've certainly purchased more in the way of art supplies and children's books in the last three months.