As we weather the storm of COVID-19, we’re seeing a surprising trend in the consumer market of the personal finances industry: debts are being repaid like never before. With British households holding well in excess of one trillion Pounds in debt, the beginning months of the COVID-19 lockdown have shown just how consumers are adapting to the new living – and purchasing – conditions they find themselves in.
The country has been in a state of lockdown for several months already. With April being the start of mandated social isolation, the consumer market immediately saw a spike in debt repayment. In the first month of social isolation, the amount repaid spiked drastically to over seven billion Pounds – the largest net repayment amount in one month since records actually began far back in 1993.
According to banks across England, this massive increase in repayment was more than double the amount repaid in the previous month. Marking a massive disruption to repayment trends, the repayment boom was matched with other less positive figures.
Where a consumer saves and repays, their purchasing falls to match. While it’s undeniably positive to see consumers address their debt in such a drastic fashion, the rise in repayment is largely believed to be a direct result of the spectacular plummet in retail spending.
Over the course of the last three months, we’ve seen the retail market tank. Total spending, excluding figures for food and groceries, has dropped by almost 50%. Barclaycard, long respected as a reference for key spending figures due to its prominence in the country, reported a dip in expenditure on non-essential items by approximately 30%.
Although we are now seeing this figure rise back up as restrictions are eased in June and July, the damage to the industry has been significant. As consumers find themselves with more disposable income due to an inability to purchase, debts are repaid – and retail establishments suffer in sales and in stability.
A blip or a continued trend?
It’s clear to see what factors have influenced the sudden boom in debt repayment. Whether you are a consumer who has sought to consolidate your debts and repay your outstanding obligation in earnest or a family meeting a range of long-standing debts while staying at home, the inability to access retail and recreation has limited unnecessary spending to a stunning degree.
Concerns exist, however, about the longevity of this sudden trend. With the government continually under fire over concerns that stimulus and relief initiatives will not suffice for businesses and consumers both, many analysts are predicting that the surge in debt repayment will be followed by a dip. As many jobs are lost and relief payments run out, many households are likely to find themselves in a poorer financial situation than they were before the pandemic hit the country in earnest.
Because of this, it’s important we view the positive uptake in debt repayment with healthy scepticism. While it’s undeniably an excellent thing that debts are being addressed more effectively by consumers, their new ability to repay is but one part of a larger picture whose future is uncertain and comprised of many uncertain parts. With the next general election and Brexit also looming on the horizon, the stability of the country and the personal finance industry is not guaranteed – and we must all keep a close eye on trends and measure any eagerness analysts may have in predicting their longevity.