Warning over surge in missed mortgage and credit card payments

19th January 2024

Latest Bank of England data has highlighted that mortgage defaults and missed payments on credit cards and loans both surged at the end of the year, and are expected to keep rising.

Missed credit card and loan payments, as a percentage of balances, are higher than they have been for at least five years with mortgage defaults were worse in the second quarter of 2023, but other than that, they’re significantly higher than they have been for at least five years.

Demand for unsecured borrowing fell in the last three months of the year and credit card demand is expected to rise in early 2024. The length of interest-free periods for balance transfers fell at the end of the year and is expected to stay at this level.

Mortgage demand fell in the last three months of 2023, and is expected to pick up in the first three months of 2024.

Sarah Coles, Head of Personal Finance at Hargreaves Lansdown said “There was a massive surge in missed debt repayments at the end of last year, as a huge number of those whose finances had been on a knife edge, finally tipped over into a debt disaster.

“Mortgage defaults and missed payments on credit cards and loans both surged. The proportion of balances behind on payments hasn’t been this bad for unsecured borrowing for at least five years – and the only time mortgage lending was worse was in the middle of last year.

“The HL Savings & Resilience Barometer found that lower earners face serious debt problems. More than a quarter (27%) are in arrears, while 37% have debt worries. It’s easy to see why, because their debt repayments (excluding mortgages) average £168 a month.

“However, the level of mortgage arrears, and the fact that credit cards are more likely to be held by average earners indicates that lower earners are far from the only ones in trouble. Middle earners are also facing horrible debt costs. The Barometer shows they have average unsecured debt repayments of £315 a month – which is a horrible chunk of cash to have to find at this stage in the cost-of-living crisis.

“There’s a real risk their income isn’t keeping up with their expenses, and they’re building problems for the future. The Bank of England figures show that banks expect credit card borrowing to keep rising during the first three months of this year.

“The banks are not yet taking steps to clamp down on borrowing. One early sign that they’re alive to the risks they face is a shortening of interest-free balance transfer periods. At the moment they’re not worried enough about arrears to slow lending. However, if the picture worsens again in the coming months, they may well take more steps to limit their lending. It means those who are counting on being able to borrow more to get through could find themselves running into a brick wall.

“The one glimmer of hope in these figures is a slight pick up in demand for mortgages. It seems that falling mortgage rates have prompted some buyers to get off the fence and commit to buying a home. The level of demand is so low that it’s going to take an awful lot before sellers are back in business, but it’s a whiff of positivity in a market that has stunk a little for some time.”