Mortgage default rates among households have increased in the past few months – and are expected to rise again in the run-up to Christmas, a survey of lenders indicates.
Defaults for non-mortgage lending, including credit cards, have decreased in recent months and banks and building societies expect this to remain unchanged in the next few months, the Bank of England’s Credit Conditions Survey found.
Lenders reported that default rates on loans to companies were unchanged for all business sizes in recent months and were also expected to be unchanged for all business sizes in the next few months.
The survey of lenders is carried out each quarter, as part of the Bank of England’s role in maintaining financial stability.
It asked lenders to report changes in the three months to the end of August, relative to the period between March and May – as well as expected changes in the three months to the end of November.
These latest figures suggest that many households are still struggling in the current environment
The survey was carried out between August 27 and September 13.
Lenders also reported that the length of interest-free periods on credit cards for balance transfers had increased in the past few months and was expected to increase slightly in the quarter ahead.
The length of interest-free periods on new credit cards for purchases also increased in the third quarter and was expected to increase slightly in the next few months.
Demand for mortgages from home buyers and borrowers looking to remortgage is expected to increase in the next few months, the report found.
Meanwhile, demand for non-mortgage loans, including credit cards, is expected to decrease in the next few months.
Demand for corporate lending is expected to decrease slightly for small businesses, increase slightly for medium-sized businesses, and increase for large businesses, the report said.
It demonstrates that higher mortgage rates are hitting middle earners hard
Karim Haji, global and UK head of financial services at KPMG, said: “These latest figures suggest that many households are still struggling in the current environment.
“Unsecured (non-mortgage) lending demand, while stable, remained elevated compared to the first quarter of the year. A fall in default rates for unsecured lending is an encouraging sign and reflects the cautious approach to credit being taken by households.
“Inflation could rise to 3% in early 2025, driven by higher energy prices and some forecasts predict headline inflation may return to target by the end of next year. This will take time to feed through to household finances.
“Coupled with the Bank’s cautious stance on interest rates, household spending power may not be unlocked any time soon. Even then, we are seeing a shift in consumer behaviour over the medium to longer term which is focused on saving not spending.
“Improvements in default rates can be short-lived so lenders mustn’t take their eye off the ball and ensure that they’re prepared to step back in to support under-pressure consumers.”
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “Mortgage default rates are mounting, and we’ve not yet reached the peak. Banks expect them to be up again by the end of the year.
“Given that those on lower incomes don’t tend to have mortgages, it demonstrates that higher mortgage rates are hitting middle earners hard.
“Anyone who has overstretched themselves in the property market, or took on too many fixed costs while mortgage rates were lower, has faced a Herculean task when they remortgaged.”
