Credit, Collections & Insolvency News
Latest data from the Bank of England has found that lenders expect default rates on home loans to climb in the coming months,
The data showed that mortgage default rates rose in Quarter 2 (Q2) with banks and building societies believing that the rate will increase further in the next three months. Lenders reported a slight increase in default rates on credit cards in Q2.
The Bank’s latest credit conditions survey also found that mortgage availability is expected to increase slightly in Q3, while the availability of loans to businesses is expected to be unchanged in the next three months.
On the supply side, lenders reported that the availability of secured credit to households was unchanged in the three months to end-May 2024 (Q2). It was expected to increase slightly over the next three months to end-August 2024 (Q3).
KPMG Global and UK Head of financial services Karim Haji said “These latest figures present a complex picture of the current lending landscape. With inflation having finally dropped to the Bank of England’s 2% target, we’ve seen demand for lending increase across the board. The falls in inflation, combined with positive wage growth in the past year, are starting to alleviate cost of living pressures on households and unlock more spending power.
“Yet interest rates remain high, and despite expected cuts are unlikely to return to the levels seen when the hiking cycle began. The cost of borrowing remains a major burden on those who have made use of lending facilities since the 2022 mini-budget or will be thinking of doing so in the coming months.”
“As more and more households’ mortgages come up for renewal, it follows that with significant jumps in monthly repayments the number of defaults could rise. Given the improving economic outlook, any upward momentum in defaults should be short lived, although lenders should remain vigilant.”
Tom Cuppello, Director, Risk, at leading independent financial services consultancy Broadstone, said “The Bank of England’s latest Credit Conditions Survey demonstrates how rate rises continue to impact households. Defaults on mortgages and credit products both rose through the last quarter as the increased borrowing costs weigh on consumers.
“The Bank of England also forecasts defaults to continue growing over the next three months as more people face the reality of higher-for-longer rates on their borrowing.
“It follows recent data from the FCA which showed that the value of outstanding mortgage balances with arrears increased by 4.2% through Q1 2014, to £21.3 billion, and was 44.5% higher than a year earlier. The economic situation is biting but demand for borrowing remains high amid a continued cost of living crisis that is driving more consumers to the credit market.
“Lenders need ensure they are supporting the long-term financial interests of their customers. The Government’s Mortgage Charter, the advent of Consumer Duty and additional regulation demonstrate that the legislative direction of travel is towards protecting borrowers in turbulent economic times.”
