If the first three months of this year were turbulent times for many households? financial situations, they now seem like an oasis of calm. Lockdown had just begun and we were beginning to see the impacts of a significant proportion of the UK's workforce facing an as-yet unknown period away from work or working remotely. With Q2 data now available, we can see the growing impact of the pandemic and lockdown on households? finances in our latest Household Finance Review. Here we summarise some key observations on the seismic changes brought about by the pandemic and how these might evolve.

Credit card borrowing falls again

Even ignoring the impact on incomes, lockdown has had a profound effect on what, where and how much consumers have bought. Spending into the tourism and hospitality industries, amongst others, was severely reduced. While we saw increases in other areas such as in supermarkets and for home leisure and fitness equipment, this was not enough to offset the dramatic falls elsewhere. As a result, credit card borrowing fell by 40 per cent in Q2, compared to Q2 2019, following a 12 per cent annual decline in Q1.

With many regular consumer spending activities severely restricted, salaries maintained or supported on furlough and consumers more wary of their ongoing financial positions, Q2 also saw a sharp increase in the amounts held in deposit accounts, which rose by five per cent compared to Q1.  Payment deferrals on credit card and personal loan accounts, together with a free overdraft buffer applied to primary current accounts all helped consumers to manage, or even pay off, their unsecured debt.

Mortgage market went on hold, but a strong initial rebound likely

In Q1 the effects of the pandemic and lockdown on the mortgage market hadn't yet crystallised. However, with the pause button pressed on the housing market just before the start of Q2 the impacts are now both clear and profound, with new house purchase lending down 48 per cent year-on-year. Within this, homemover activity saw a larger decrease with the effects of lockdown exacerbated for these transactions, which generally rely on the successful formation of housing chains. Construction was one of the more badly-affected sectors and, consequently, lending for new build saw a significant decline, falling by nearly two-thirds year-on-year.

However, looking beyond Q2 our forward-looking data on mortgage applications suggests that, with the English housing market reopening in May, we can expect a strong initial recovery in Q3, with those transactions put on hold now able to complete. Q2 application volumes were in fact slightly up on the same quarter in 2019, fuelled by the backlog of activity from those transactions that were put on hold in the early weeks of lockdown. The housing markets in Wales, Scotland and Northern Ireland, having all reopened somewhat later, are likely to see rebounds come commensurately later as well.

Mortgage payment deferrals kept arrears to a minimum, whilst possession activity ceased

Through the payment deferral scheme, mortgage lenders have been able to help unprecedented numbers of borrowers cope with the personal economic consequences of the pandemic. In total, lenders granted over two million deferrals to mortgage customers, the vast majority of which were in place by the end of April. However, following the end of June, when most of the initial wave of three-month deferrals came to an end and for the most part customers resumed payments, the number is now considerably lower. Although over 250,000 more deferrals have been granted since then, the total number in force now stands at 731,000.

As a result of this industry support for borrowers affected by the pandemic, mortgage arrears have been contained and the figure of 74,000 mortgages in arrears at the end of Q2 was only two per cent higher than the number in Q1 and three per cent below the number in Q2 2019.

Meanwhile, the moratorium on court possessions activity has meant that for the whole of Q2 and through to the end of Q3, the only mortgaged property possessions are those at the borrower's request. In Q2 there were just 230 possessions, 88 per cent fewer than the number in Q2 2019.

What does the near-term future hold?

The banking and finance industry has provided unprecedented support to customers as part of its clear plan to get the country through the coronavirus crisis. This has included millions of mortgage payments deferrals, interest-free overdrafts, and payment deferrals on credit cards and personal loans.

It is still far too early to say with any confidence when the economy will return to something approaching normal activity, or what the longer-term consequences of the pandemic will be. The inevitable rise in unemployment will act as a brake on new lending to an extent, while some existing borrowers may face more protracted payment difficulties. Where this occurs, lenders are committed to providing ongoing support to those customers who need it, and there will remain a range of ?business-as-usual? options available, including payment deferrals in appropriate cases.