Default rates on mortgages and credit are rising and trend expected to continue

Default rates on mortgages and credit cards are on the rise, with expectations of further increases in the months ahead, a Bank of England survey of lenders has revealed.

Lenders say that the overall demand for non-mortgage credit has risen over the past few months and is set to continue its upward trajectory. Karim Haji, the global and UK head of financial services at KPMG, said: “Considering inflation is now falling and is expected to drop to below the Bank of England’s 2% target in the months ahead, rising demand for credit card lending in (the first quarter of 2024) suggests a more positive economic outlook hasn’t fed through to household finances yet.”

“Defaults across all unsecured (non-mortgage) lending increasing over the same three-month period indicates many people are still struggling to meet their day-to-day costs. Lenders will need to be vigilant and continue to offer support for borrowers in the interim.”

In the mortgage sector, lenders reported an increase in availability to households over the past three months leading up to February’s end, with expectations of a continued rise over the next three months until the end of May. Furthermore, lenders predict a surge in demand for both house purchase mortgages and remortgaging.

The Bank of England’s survey revealed that the availability of non-mortgage credit to households remained steady, with expectations for it to stay largely the same in the three months leading up to the end of May. Lenders have reported a decrease in the length of interest-free periods on credit cards for balance transfers over the past few months, and this is expected to remain unchanged by the end of May.

Conversely, the length of interest-free periods on new credit cards for purchases has seen a slight increase in recent months, and this is also expected to remain unchanged by the end of May. When it comes to business loans, default rates have slightly risen for small and medium businesses, but have remained unchanged for larger firms in recent months, according to the Bank of England’s Credit Conditions Survey.

Over the next few months, default rates are predicted to rise for small and medium-sized businesses, while remaining unchanged for larger firms. Lenders have reported that the overall availability of credit to the corporate sector has remained unchanged in the past few months.

However, the overall availability of credit to businesses is expected to see a slight increase by the end of May. The Bank of England conducts this survey every quarter as part of its role in maintaining financial stability.

The results are based on the responses from banks and building societies to the survey, rather than the views of the Bank itself. Lenders were asked to report changes in the three months to the end of February 2024, relative to the period between September and November.

They were also asked about expected changes in the three months to the end of May 2024, relative to the period between December and February. The survey was carried out between February 26 and March 15.