Photo by UK Mortgage Defaults on the Rise: Lenders Warn of Impending Increase
Defaults on household loans, particularly mortgages, are projected to climb in the next three months, according to a Bank of England survey of lenders. The survey revealed that banks and building societies have already seen an increase in mortgage default rates during the second quarter of this year and anticipate a further rise in the third quarter.
Mortgage default rates are expected to increase in the coming months.
The default rate for non-mortgage lending also saw a slight increase in the second quarter and is expected to continue rising moderately in the coming months. Specifically, defaults on credit card loans increased slightly, while defaults on other types of loans decreased. Looking ahead, lenders expect the default rate for credit card loans to remain unchanged, while defaults on other loans are anticipated to rise in the third quarter.
“Although falling inflation and positive wage growth are beginning to alleviate cost-of-living pressures, high interest rates continue to burden borrowers.” - Karim Haji, Global and UK Head of Financial Services at KPMG
Despite potential rate cuts, interest rates are unlikely to revert to pre-hiking cycle levels. Haji emphasised that the cost of borrowing remains significant, especially for those who utilised lending facilities post-2022 mini-budget or are considering doing so in the near future. He warned that as more households face mortgage renewals with substantial increases in monthly repayments, default rates could rise.
Mortgage renewals with substantial increases in monthly repayments are expected to rise.
However, he suggested that any increase in defaults should be short-lived given the improving economic outlook, though lenders should stay vigilant. The Bank of England’s Credit Conditions Survey also highlighted that mortgage availability is expected to increase slightly over the next three months. However, the availability of non-mortgage credit to households is anticipated to remain unchanged. Similarly, the availability of loans to businesses is expected to stay the same in the upcoming quarter.
Credit availability is expected to remain stable in the upcoming quarter.
For corporate loans, the survey indicated a slight increase in default rates among small and medium-sized businesses during the second quarter, with rates remaining unchanged for large businesses. In the third quarter, lenders expect default rates for businesses of all sizes to remain stable.
