MACCLESFIELD 27 August 2020 | Analysis: Dawn Wood, Monevo Operations Director

At a time of uncertainty and flux in the personal loan and credit market, we thought it would be useful to report on any new developments in the market and pass on relevant information to our valuable partners. 

We have been keeping a close eye on any fluctuations in borrower and lender behaviour and any subsequent trends that may be useful at this time of post-lockdown we find ourselves in, so that we can accurately respond to meet our partners and their consumers’ needs.

One of the latest studies that is well-worth tracking is the Credit Conditions survey, produced by the Bank of England. The latest report for Q2 that was released this month indicates a number of interesting trends that we can gain insight from:

• Lenders reported that the availability of unsecured credit to households decreased in Q2, and was expected to decrease further in Q3.
• Lenders reported that overall demand for unsecured lending decreased in Q2, comprising a decrease in both demand for credit card and other unsecured lending. Lenders expected overall demand for unsecured lending to increase in Q3.
• Lenders reported that overall unsecured lending spreads were unchanged in Q2, and were expected to remain unchanged in Q3. Lenders reported that the length of interest-free periods on credit cards for balance transfers, and on purchases, decreased in Q2, and lenders expected both to decrease in Q3.

What can we learn from this?

The decrease in unsecured credit availability is not surprising given the current climate of uncertainty, though this was compounded by demand that also fell in Q2 as consumers reduced their borrowing during lockdown. 

However, lenders are predicting an increase in demand for borrowing in Q3 as things start to return to normal. While demand is expected to return there are major concerns within the lender community around consumers’ ability to repay during this period, given the financial pressures many have faced during lockdown such as redundancies, furloughing and businesses having to close. This could lead to a rise in unpaid debts and defaults across lenders loan books. This is likely to result in lenders decreasing the availability of credit rather than increasing into Q3.

In addition, an extended period of uncertainty post-lockdown lends itself to decreasing interest-free periods on credit cards so lending periods are likely to reduce across the board.

In summary, things remain uncertain and while demand is likely to return, the supply of credit returning to more normal lenders does not seem likely yet.

To read the full survey, head over to the Bank of England’s website here: https://www.bankofengland.co.uk/credit-conditions-survey/2020/2020-q2