The Bank of England’s quarterly Credit Conditions Survey saw respondents say that the length of interest-free periods on credit cards, for both balance transfers and purchases, had increased in the previous three months, with further increases expected in the next three months.
Mortgage availability also increased in the three months to the end of May, with lenders saying this is also expected to increase further in the three months to the end of August. While demand for mortgages increased over the last quarter, it is expected to decrease for house purchase in the next three months, with the recent tapering of the stamp duty holiday set to have an impact.
The survey also suggests banks expect default rates on unsecured lending – or credit card lending – to jump in Q3, with the number of borrowers defaulting on secured lending also forecast to rise. There is concern that household finances are likely to worsen as coronavirus support schemes designed to lessen the economic impact of the pandemic are wound down.
Commenting on the figures Sarah Coles, Personal Finance Analyst, Hargreaves Lansdown said “Borrowing is flowing thick and fast. We’re keen to take on more debt and the banks are equally enthusiastic about lending, because they’re optimistic about the economy, and want to grab market share while they can. But while the tap is firmly turned on, some borrowers risk sinking underwater, and defaults on all kinds of household borrowing are expected to rise.”
“Banks are ready to lend throughout the mortgage market, so it’s not only those with big deposits who can track down deals. The three months to June saw a big surge in banks’ willingness to lend to people with less than a 10% deposit, and this is expected to rise slightly again in the following three months. Those who have been insulated from the effects of the pandemic are likely to be able to cash in on the mortgage price war by snapping up a cut-price remortgage deal.”
“However, it’s not all going swimmingly for borrowers. The banks expect defaults on credit cards, loans and mortgages to increase in the three months to September. As the furlough scheme is phased out over the summer, there’s a good chance that there will be job losses, and people who have been struggling to keep their head above water will finally succumb. At the end of July, the final mortgage holidays will come to an end too, so there won’t be help from industry-wide schemes. It means borrowers will have to rely on whatever they can arrange with their lender.
“Since the onset of the crisis, lenders have been cutting credit card limits, in an effort to keep a lid on their exposure to bad debts. They continued to do so in the three months to June and say they will do it again in the three months to September.”