Defaults rates on mortgages and credit cards set to increase, lenders predict

Default rates for mortgages and credit cards by households are expected to increase by the end of November, according to a Bank of England survey of lenders.

For businesses, default rates are predicted by lenders to increase in the fourth quarter of 2023 for small firms, increase slightly for medium-sized ones, and remain unchanged for big businesses, the Bank’s Credit Conditions Survey found.

Lenders reported that default rates on mortgages had already increased in the third quarter of this year, and losses given default also increased slightly. Both are expected to increase in the next few months.

Over the previous three months default rates for credit cards slightly decreased and default rates for other non-mortgage loans increased, lenders said.

Default rates for credit cards and for other loans were both expected to increase by the end of November.

Transaction activity in the property market is slowing and many borrowers are still rolling off sub-2% deals and are eager to put off refinancing where they are able to do so

Mortgage availability to households fell in the three months to the end of August and is expected to decrease further slightly by the end of November.

Demand for mortgages for house purchase and remortgaging decreased in the third quarter of this year, and was expected to fall further in the next few months.

Commenting on the report, Hina Bhudia, a partner at Knight Frank Finance, said: “Transaction activity in the property market is slowing and many borrowers are still rolling off sub-2% deals and are eager to put off refinancing where they are able to do so.

“Borrowers that do act are generally opting for trackers. For many people, the risk that monthly payments increase in the event of another interest rate hike is worth taking if it gives them the opportunity to see cuts in their monthly outgoings next year.”

Jamie Lennox, director at Norwich-based broker, Dimora Mortgages, told website and news agency Newspage: “With the damage created by the previous 14 consecutive rate increases starting to feed through, the sad reality is that this is only the tip of the iceberg. More pain is set to come with Christmas around the corner, which will likely see consumers’ affordability stretched to its limits.”

Lenders also reported that the availability of non-mortgage credit to households fell in the three months to August and is expected to be unchanged in the next few months.

Demand for credit cards and other types of non-mortgage lending is expected to increase in the next few months.

For the latest research, lenders were asked to report changes in the three months to the end of August relative to the three months ending in May.

They were also asked about expectations for the three months to the end of November.

The survey was carried out between August 29 and September 15.

Lenders reported that the overall availability of credit to the corporate sector was unchanged in the previous three months and is expected to remain unchanged in the next few months.

Demand from businesses for borrowing in the next few months is expected to decrease slightly for small and medium-sized businesses, and to be unchanged for large businesses.