Money and Credit - July 2021

Overview

These monthly statistics on the amount of, and interest rates on, borrowing and deposits by households and businesses are used by the Bank’s policy committees to understand economic trends and developments in the banking system.

Key points:

• Individuals repaid £1.4 billion of mortgage debt on net in July following record net borrowing in June of £17.7 billion. Mortgage approvals for house purchase were 75,200 in July, down from 80,300 in June.
• Consumers did not borrow additional consumer credit, on net. The effective rate on new personal loans remained low at 5.85%, but was the highest since March 2020.
• Households’ net flow in to deposit accounts decreased in July, to £7.1 billion. Deposit interest rates continued to fall slightly, to new historically low levels.
• Large businesses borrowed £4.5 billion from banks in July, whilst small and medium sized businesses repaid £1.2 billion. Private non-financial companies raised no additional net finance from capital markets in July, compared to a monthly average net issuance of £3.0 billion since March 2020.

References in the text point to the summary tables below. For further statistics, please see our visual summaries, Effective Rates (ER) statistical release, Capital Issuance statistical release, and Bankstats tables.

Lending to individuals

Mortgage lending (M&C Tables D and E):

Individuals repaid £1.4 billion of mortgage debt, on net, in July (Chart 1). Net repayments are relatively rare, with only one other repayment (in April 2020) in the past decade. The net repayment in July followed record borrowing in June (£17.7 billion), which was probably boosted by the initial tapering off of the stamp duty holiday. Gross lending fell to its lowest since June 2020, at £16.5 billion. Gross repayments were a little below the twelve month average, at £18.1 billion.

Approvals for house purchases, an indicator of future borrowing, decreased further in July to 75,200. This is the lowest since July 2020, but remains above pre-February 2020 levels. Approvals for remortgage (which only capture remortgaging with a different lender) rose to 37,400 in July, from 35,800 in June. This remains low compared to the months running up to February 2020.

The ‘effective’ rate – the actual interest rate paid – on newly drawn mortgages decreased 12 basis points to 1.83% in July. That is a little below the rate in January 2020 (1.85%), but equal to the series average since March 2020. The rate on the outstanding stock of mortgages dropped 2 basis points to a new series low of 2.05%.

Consumer credit (M&C Tables B and C):

Overall, individuals borrowed no additional consumer credit in July. Within this, they borrowed an additional £0.1 billion of ‘other’ forms of consumer credit (such as car dealership finance and personal loans), offset by net credit card repayments of £0.1 billion (Chart 2). On average, £1.2 billion of consumer credit was borrowed, per month, in the 2 years to February 2020.

The annual growth rate for all consumer credit remained weak, decreasing slightly to -2.7% in July from -2.2% in June. The annual growth rates of credit cards and other forms of consumer credit also remained weak at -8.3% and -0.3%, respectively.

The effective interest rate on interest-charging overdrafts decreased by 34 basis points to 20.35% in July. This series has varied between 19.8% and 20.9% since September 2020. Rates on new personal loans to individuals increased by 18 basis points, to 5.85% in June, the highest since March 2020 (6.43%). The cost of credit card borrowing was 17.7% in July, having varied between 17.5% and 18.5% since March 2020.

Households’ deposits (M&C Table J):

Households deposited an additional £7.1 billion with banks and building societies in July. This compares to an average net flow into banks and building societies of £8.8 billion between April and June 2021 (Chart 3), and a series peak of £27.4 billion in May 2020. The July flow is nevertheless relatively strong - in the year to February 2020, the average inflow was £4.7 billion.

The effective interest rate paid on individuals’ new time deposits with banks decreased by 2 basis point to 0.29%, a new series low. The effective rates on the outstanding stock of time deposits also fell marginally to another new series low, at 0.38%, whilst sight deposit rates remained at 0.10%.

Lending to and deposits from businesses

Businesses’ borrowing from banks (M&C Tables F-I):

UK non-financial businesses (PNFCs and public corporations) borrowed £3.7 billion from banks in July, an increase from £1.5 billion in June. The pickup in borrowing in July reflected large non-financial businesses borrowing £4.9 billion, the highest amount borrowed since April 2020. This strength was partially offset by small and medium sized non-financial businesses (SMEs) who repaid £1.2 billion of loans in July, on net.

Large non-financial businesses have been making net repayments for much of the past year. The annual growth rate of borrowing by all large businesses remained weak, at -3.1% in July, as a result. This continues to rise as large repayments from the first half of 2020 stop pulling down on the rate as they fall out of the annual comparison (Chart 4).

The average cost of new borrowing from banks by all PNFCs decreased 59 basis points to 1.79%. This is below the average seen since March 2020 and compares with a recent peak of 2.96% in February 2020. The decrease in July 2021 was driven by a 62 basis points decrease in the cost of floating-rate loans to 1.76%. Rates on fixed-rate loans increased by 5 basis points to 2.34%.

The net repayment by SMEs of £1.2 billion is the largest on record, and follows average net borrowing of £2.7 billion per month since March 2020. The annual growth rate has fallen sharply from 25.9% in March to 2.9% in July. Particularly strong net borrowing between May and July 2020 is no longer boosting the annual growth rate. Interest rates on new loans to SMEs decreased by 11 basis points to 2.47% in July, but remain above the average of 2.07% since March 2020.

Market Finance (M&C Table F):

Private non-financial companies (PNFCs) had no net change in financial markets finance in July (Chart 5). In the twelve months to June 2021, PNFCs have borrowed an average of £1.4 billion. Net issuance of bonds at £0.4 billion, offset by net redemption of equity and commercial paper at £0.4 billion and £0.1 billion respectively.

Businesses’ deposits with banks:

In July, UK non-financial businesses withdrew £15.8 billion in deposits with banks in all currencies, on net. This is the largest withdrawal since January 2019 (£16.2 billion). The effective rates on new time deposits and stock sight deposits for PNFCs remained broadly unchanged at very low levels in July, at 0.07% and 0.05%.

Aggregate money (M4ex) and lending (M4Lex) (M&C Table J)

Sterling money (known as M4ex) increased by £6.7 billion in July, down from £19.6 billion in June. This is the weakest since August 2020 (£1.4 billion). Households’ holdings of money continued rising with net flows of £7.1 billion. PNFCs’ holdings (on a seasonally adjusted basis) decreased by £7.1 billion, the weakest on record.

Sterling net lending to private sector companies and households, or M4Lex, dropped in July, by £13.8 billion. This was significantly down from £23.2 billion increase in June, and the lowest in a decade. The decrease was concentrated among non-intermediate OFCs.