Lenders expect default rates on loans to households and businesses to increase

Some households could find it tougher to get a mortgage and other types of credit in the coming months, amid lenders’ expectations that more may default on loans.

Lenders expect the availability of mortgages and other credit to households to decrease by the end of February 2023, the Bank of England’s Credit Conditions Survey found.

Lenders also reported that the lengths of interest-free periods on credit cards for both balance transfers and purchases decreased towards the end of 2022, and are expected to fall further in early 2023.

Default rates on mortgages and non-mortgage loans to households are predicted by lenders to increase in early 2023, the survey found.

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Default rates are also expected to increase for businesses of all sizes.

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One point of concern is that lenders expect the availability of mortgages to decrease in the next quarter

The availability of credit to the corporate sector is also predicted by lenders to slightly decrease by the end of February.

Demand from households for mortgages to buy homes is expected to decrease in the coming months, but it is thought re-mortgaging demand will increase slightly.

Households’ demand for credit card borrowing is expected to decrease slightly.

Among businesses, demand for loans is expected to be unchanged among small businesses and is predicted to to decrease for medium-sized and large businesses.

The Credit Conditions Survey of banks and building societies is carried out every quarter, as part of the Bank’s mission to maintain financial stability.

The findings do not necessarily reflect the Bank’s own views on credit conditions.

Lenders were asked to report changes in the three months to the end of November 2022 compared with the period between June and August.

They were also asked about their expectations for December 2022 to the end of February 2023.

The survey for the latest report was carried out between November 21 and December 9 2022 so any impact from more recent developments will not be captured.

Justin Moy, founder at broker EHF Mortgages, based in Chelmsford in Essex, said: “Demand was initially strong in the early autumn as a number of borrowers moved to secure decent deals before the mini-budget.”

But when mortgage rates quickly increased, he said many borrowers “were either panicking or biding their time”.

Kylie-Ann Gatecliffe, director at broker KAG Financial, based in Selby in Yorkshire, said: “I believe we will see more (defaults) this year as people feel the squeeze from a winter of rising energy costs.

“One point of concern is that lenders expect the availability of mortgages to decrease in the next quarter.”

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