Default rates on mortgages and credit cards are on the upswing, with expectations of further increases in the months ahead, as revealed by a Bank of England survey of lenders.
The appetite for credit card borrowing has surged recently and is anticipated to climb even higher by the end of May, according to the report.
Lenders have observed that the overall demand for non-mortgage lending has risen in recent months and is set to continue its upward trajectory.
Karim Haji, the global and UK head of financial services at KPMG, commented: “Considering inflation is now falling and is expected to drop to below the Bank of England’s two percent 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 ending February, with expectations of a further rise in the following three months leading up to the end of May.
Lenders also predict a boost in demand for mortgages for house purchases 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.
In recent months, lenders reported a decrease in the length of interest-free periods on credit cards for balance transfers, and this trend is expected to continue until the end of May.
Conversely, the length of interest-free periods on new credit cards for purchases saw a slight increase in recent months, with no changes anticipated by the end of May.
Turning to business loans, the Bank of England’s Credit Conditions Survey found that default rates had slightly risen for small and medium businesses, while remaining unchanged for larger firms in recent months.
Looking ahead, default rates are predicted to rise for small and medium-sized businesses in the coming months, while remaining stable for larger firms.
Lenders reported that the overall availability of credit to the corporate sector had not changed 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 findings are based on the responses from banks and building societies to the survey, rather than the Bank’s own views.
Lenders were surveyed about changes in the three months leading up to the end of February 2024, compared to the period between September and November. They were also questioned about anticipated changes in the three months leading up to the end of May 2024, relative to the period between December and February.
The survey was conducted from February 26 to March 15.
