Bank of England issues warning over potential loan default rise

15th October 2021

A Bank of England (BOE) survey of lenders suggests that more households are expected to have defaulted on mortgages and other loans by the end of November.

The Bank’s credit conditions survey asks banks and building societies to detail the climate over the previous quarter and what they expect in the next three months. While mortgage default rates had decreased in the three months to the end of August, they are expected to increase by the end of November, as are default rates on other types of loans, including credit cards. Lenders also anticipate an increase in the number of SMEs defaulting on loans, while default rates are likely to remain unchanged for large firms.

The report shows that lenders expect the availability of mortgages and other loans to households to increase by the end of November. Mortgage demand is predicted to slip but demand for re-mortgaging is likely to climb, respondents said. corporate credit availability is expected to remain unchanged, with it also shown that demand for business loans is forecast to increase for large businesses and rise slightly for SMEs.

The survey also indicated that demand for mortgages to buy a house fell in Q3 and is likely to fall again in the fourth quarter, but remortgaging is likely to more than offset the fall in new mortgages.

A balance of 18.3% of mortgage lenders anticipated a further easing in credit conditions in the final quarter of 2021, slightly higher than the balance of 15.3% reporting that credit conditions eased in Q3. The report shows that mortgage lenders offered lower interest rates than the previous quarter in Q3 and were willing to accept a larger number of applications from buyers with small deposits.