"Against a backdrop of weak UK growth and continued inflationary pressures, we may see defaults continue to rise in the months ahead. "
- Karim Haji, Global and UK head of financial services at KPMG
The Bank of England's Credit Conditions Survey for Q4 shows that mortgage defaults continue to increase.
Lenders reported that default rates on secured loans to households slightly increased in Q4, but were expected to be unchanged in Q1. Losses given default on secured loans increased in Q4, and were expected to increase slightly in Q1 this year.
Lenders reported an increase in the availability of secured credit in the three months to the end of November, and expect a further increase over the next three months.
However, the survey shows that while demand for mortgage lending increased in Q4, it is expected to decrease this quarter. Similarly, demand for remortgaging rose in the previous quarter but is expected to fall in Q1.
Karim Haji, Global and UK head of financial services at KPMG, commented: “These latest figures mark the eighth quarter in a row where lenders have reported a rise in mortgage defaults. This points to the financial strain on households as many are hit by higher mortgage rates in an environment which is still challenged by high cost of living and uncertain future interest rates.
“Against a backdrop of weak UK growth and continued inflationary pressures, we may see defaults continue to rise in the months ahead. Recent shifts in expectations on when and by how much interest rates are likely to fall mean households might expect more financial pain for longer.
“While some other areas of credit remain stable, such as default rates on unsecured lending which fell, the rise in mortgage defaults highlights ongoing economic uncertainty and suggests that many households are still feeling the financial pinch.
“The slight rise in unsecured lending suggests households continued to struggle with cost-of-living challenges in the run up to Christmas, which can be an expensive period for many.
“Lenders need to take a cautious approach to credit applications considering these latest default rates and offer the necessary support to those who have struggled financially over the festive period.”
Tom Cuppello, director of risk, at financial services consultancy Broadstone, said: “The Bank of England’s latest Credit Conditions Survey highlights increasing demand for borrowing through the final quarter of the year despite the increasingly strained economic outlook. Activity is likely to be depressed in the opening quarter of 2025 which suggests the deterioration in the nation’s finances is likely feeding through into household behaviours on their finances.
“It is pleasing that the availability of credit appears to be continuing to rise, offering more options to consumers. However, borrowers should be mindful of potential cost increases and increasing defaults seen recently especially given the current market uncertainty.
“Lenders need ensure they are supporting the long-term financial interests of their customers. The Government’s Mortgage Charter, the advent of Consumer Duty and additional regulation demonstrate that the legislative direction of travel is towards protecting borrowers in turbulent economic times.”
