Borrowing soars despite looming furlough end

We always knew it would happen.

While we all pledged to continue the remarkable cash stashing activities of the last year, the moment the shop doors opened under the first major easing of the latest national lockdown, so too did our wallets.

After paying off debts to the tune of £1.7bn a month on average every month since last April, we’re now down to £0.4bn a month according to the Bank of England.

Consumer finance — borrowing facilities on everything from store cards to personal loans — is growing at 147 per cent a year, accelerating faster than it was in those seemingly simpler, pre-pandemic days.

New credit card and personal loan agreements alone are up by more than 60 per cent compared with this time last year, says the Finance and Leasing Association.

And a 31 per cent year-on-year hike in store and online credit agreements in April means we weren’t just splashing our savings as shops opened and delivery services finally settled down.

Experts believe consumer finance new business will continue to grow by 14 per cent over the rest of 2021 and by a further 16 per cent in 2022.

That’s the small scale end of the borrowing spectrum too.

In a bid to keep up with house prices that have increased by a logic-defying 9.5 per cent in the last year according to the latest Halifax House Price Index, there are now more mortgage products floating around than at any point since the start of the pandemic.

A flood of 95 per cent loan-to-value choice and the creeping rise in the how much we can borrow based on income multiples - up to 5.5 or even six times annual salaries - appears to fly in the face of the looming furlough end.

The scheme was still paying most of 3.4m people’s salaries when HMRC last counted on 30 April.

Meanwhile, as we’ve spent the last six months eyeing the six person rule and booking regrettable flights to Faro while waiting for the final return to normal, 215,000 firms have permanently shut.

The number, according to analysis by IT asset disposal firm DSA Connect, is rising too — up from 103,785 closures in the last three months of 2020 to 111,145 in the first three months of this year.

A freedom of information request by the GMB union this week revealed at least 105,000 potential redundancies were notified to the Insolvency Service by 1,200 employers between January and April this year.

Just as the last of the big economic props are falling away, we appear to be ramping up our appetite for borrowing, sleepwalking into a situation where millions of people owe a lot of money on the back of nonsensical assumptions with, potentially, no way of paying it back if they lose their income. And we know how that goes.

Anyone who feels redundancy is hanging over them is, of course, urged to cut costs in order to build up an emergency fund and pay down debt. Some experts go further to suggest cutting household budgets as if the loss of income had already occurred.

If they do lose their jobs, those who are currently on furlough must be paid statutory redundancy based on their normal salary, not the income level they receive at the moment. Nor does the furlough scheme impact on redundancy notice periods.

Further advice and support around the terms and legalities of redundancy is available from Citizens Advice and ACAS.

But how reasonable are our fears, or at least jitters, over household income and our ability to maintain a financial balance as the new normal emerges?

After all, there have been sharp recoveries across the three major sectors of manufacturing, services and construction recently, and those furlough figures are dropping by the best part of a million people per month.

The latest data available from the Office for National Statistics (ONS) shows a drop in the unemployment rate and an increase in the employment rate even during the third Covid lockdown earlier this year.

In fact, experts like Ruth Lea, economic adviser to the Arbuthnot Banking Group, believes the economy is recovering so strongly that it is at risk of overheating, triggering a rise in inflation that could shock those who have never experienced anything but an ultra low cost of borrowing.

“All the indicators released last week, not least of all the latest Markit surveys, suggested that the economy is recovering strongly,” she says, to the extent that she has joined calls for the government to reign in its current quantitative easing targets.

“Under these circumstances, it is relevant to consider the appropriateness of current monetary policy, which is very accommodative.

“Given the expected strength of the ‘bounce-back’, the Bank of England’s Monetary Policy Committee (MPC) should seriously consider cutting back the current bond purchasing programme to £100bn, as proposed by [Bank of England chief economist] Andy Haldane," she suggests.