Lenders report lower borrowing demand

14th January 2022

Lenders have reported a lower borrowing demand at the close of the year according to a new report from the Bank of England (BoE).

The quarterly survey of banks and building societies found that demand for secured lending for house purchases fell in the final quarter of last year.

The demand for mortgages fell back at the end of 2021 and is expected to do so again in the first three months of 2022, whilst the demand for lending on credit cards and loans rose in the last three months of the year and is expected to do so again during the current quarter, as the big squeeze on our finances takes a toll.

The report indicated that banks are increasingly prepared to lend, and this will continue to March. They’re also boosting interest-free periods on credit cards for both balance transfers and purchases.

Defaults for both mortgages and unsecured lending are also predicted to increase in the first three months of this year.

Commenting on the figures, Sarah Coles, Senior Personal Finance Analyst at Hargreaves Lansdown said “Demand for mortgages has dropped, and is set to keep falling, so banks don’t need as much cash to fund this lending. The news isn’t any better for borrowers, because the squeeze on household incomes means more people turning to credit cards and loans, and more struggling to make repayments.”

“Demand for loans and credit cards rose at the end of the year and is set to continue doing so as we go into 2022. With inflation running at 5.1%, and the price of petrol and energy causing real pain for households, more of us have been borrowing to make ends meet, and the banks expect us to keep borrowing even more.”

“In the short term, this may not cause any problems, because the banks are increasingly happy to lend. The trouble comes further down the line, when prices have gone up even more, and you’re struggling to stretch your budget to cover interest payments on top of your rising bills. Already the banks say that default rates on both mortgages and unsecured lending have started to rise, and they expect them to increase further in the first three months of the year.”

Paul Heywood, Chief Data and Analytics Officer at Equifax UK said “Demand for credit was expected to balloon in the final quarter of 2021, as government support measures tailed off, and rising inflation increased costs for consumers and businesses alike.”

“With a few exceptions, that’s exactly what lenders have seen, especially in the unsecured lending space, where a cost-of-living crisis and the end of furlough collided with a festive period that saw retail sales rise by 2.1%. The Bank of England was also blowing hot and cold over a potential base rate rise at the back end of last year, which has led to continued demand from homeowners looking to remortgage, but the greatest uptick actually came from new property purchases, suggesting that the end of the Stamp Duty holiday has done little to quell activity in the housing market.”

“Over on the supply side, credit providers report being eager to lend to households, and have been increasing the availability of credit in recent months, but as the latest wave of COVID tears across the UK, there are symptoms of a looming affordability crisis. Loan defaults are set to rise, as are the number of people falling into arrears, and this should be a reminder for lenders that affordability assessments are now more important than ever.”