Households across the UK are facing increasing challenges as mortgage default rates have risen in recent months and are predicted to continue climbing leading up to the holiday season, according to a survey of lenders. The Bank of England’s Credit Conditions Survey revealed that defaults for non-mortgage lending, such as credit cards, have actually decreased in recent months, with banks and building societies expecting this trend to persist in the coming months. Lenders indicated that default rates on loans to companies have remained steady for all business sizes recently and are anticipated to remain unchanged in the foreseeable future. Conducted quarterly as part of the Bank of England’s efforts to uphold financial stability, the survey gathered data on changes from the end of August compared to the previous quarter and expected changes by the end of November.
During the survey period between August 27 and September 13, lenders also noted an increase in the length of interest-free periods on credit cards for balance transfers, a trend expected to continue slightly in the next quarter. Similarly, the length of interest-free periods on new credit cards for purchases saw a rise in the third quarter and is projected to increase slightly in the upcoming months. Home buyers and remortgaging applicants are expected to drive an increase in mortgage demand in the near future, while the demand for non-mortgage loans, including credit cards, is predicted to decrease. Corporate lending demand is forecast to decrease slightly for small businesses, rise slightly for medium-sized businesses, and increase for large businesses, according to the report.
Karim Haji, the global and UK head of financial services at KPMG, expressed concerns over the findings, stating that many households are still struggling in the current economic climate. Although there has been stability in unsecured lending demand, it remains elevated compared to earlier in the year. The decrease in default rates for unsecured lending is seen as positive, reflecting a cautious approach to credit by households. Looking ahead, Haji highlighted the potential impact of inflation on household finances, with forecasts indicating a rise to 3% in early 2025 driven by higher energy prices. Despite the Bank’s conservative approach to interest rates, household spending power may remain constrained, especially as consumer behaviour shifts towards saving rather than spending.
Haji emphasised the importance for lenders to remain vigilant and ready to support consumers under financial pressure, as improvements in default rates may be temporary. The need for responsible lending practices and ongoing support for individuals navigating financial difficulties was underscored as essential. As households continue to face economic uncertainties, it is crucial for lenders to stay attuned to evolving financial challenges and be prepared to assist those in need.