Defaults on household loans are expected to continue to climb in the next three months, according to a Bank of England survey of lenders.
Banks and building societies reported that the default rate on mortgages increased in the second quarter of this year, and was expected to increase again in the third quarter.
Lenders reported that the default rate for non-mortgage lending slightly increased in the second quarter of this year, and was expected to increase slightly in the next three months.
The cost of borrowing remains a major burden
Karim Haji, KPMG
Within this, over the past three months defaults for credit card loans slightly increased and decreased for other loans. Defaults for credit card loans were expected to be unchanged and for other loans were expected to increase in the third quarter.
Lenders also reported that default rates on corporate loans slightly increased for small and medium businesses, and were unchanged for large businesses in the second quarter of this year.
In the third quarter, default rates were expected to be unchanged for businesses of all sizes.
Karim Haji, global and UK head of financial services at KPMG said: “The falls in inflation, combined with positive wage growth in the past year, are starting to alleviate cost-of-living pressures on households and unlock more spending power.
“Yet interest rates remain high, and despite expected cuts, are unlikely to return to the levels seen when the hiking cycle began.
“The cost of borrowing remains a major burden on those who have made use of lending facilities since the 2022 mini-budget or will be thinking of doing so in the coming months.
“As more and more households’ mortgages come up for renewal, it follows that with significant jumps in monthly repayments the number of defaults could rise. Given the improving economic outlook, any upward momentum in defaults should be short-lived, although lenders should remain vigilant.”
The Bank’s Credit Conditions Survey also found that mortgage availability is expected to increase slightly over the next three months.
Lenders reported that the availability of non-mortgage credit to households is expected to remain unchanged in the third quarter.
The availability of loans to businesses is expected to be unchanged in the next three months.
The survey was carried out between May 28 and June 14.
