Equifax UK has said that lenders will need to keep a “close eye” on affordability, as defaults are expected to rise when government support schemes end.
Paul Heywood, chief data and analytics officer at the credit ratings agency, said that the increase in credit card spending and personal loan take-up in the second quarter, shown by UK Finance’s household review, was down to the lifting of lockdown restrictions.
However, he warned that lenders will have to be careful as lending has not yet returned to pre-Covid levels and defaults and arrears will rise as state-backed support ends.
“We’ve finally waved goodbye to lockdown restrictions, and with it one of the main barriers holding back consumer spending,” said Heywood.
“Pubs, bars, cinemas, and restaurants have all roared back to life over the past few weeks, which is causing people’s spending habits to gravitate back towards ‘normal’, and with it, many of the healthy borrowing behaviours from before the pandemic.
“Secured and unsecured lending hasn’t quite returned to pre-pandemic levels, due mainly to unplanned lockdown savings and the high uptake of government support measures, but credit card spending is at its highest level since the pandemic began and personal bank loans are up 26 per cent year on year.
“This borrowing is crucial to the economic recovery and hasn’t, as some feared, come with an abandonment of the savings habits developed in lockdown.
“However, with government support schemes still wrapping up, and employment levels yet to find a new equilibrium, lenders will be keeping a close eye on affordability over the coming months, especially if we begin to see a meaningful change to the level of arrears and defaults among the population.”