"Borrowing is down on mortgages, unsecured debts are level or mounting, and defaults on unsecured debts will be increasing as we move into the last quarter of this year."
Lenders have reported that default rates on secured loans to households increased during the third quarter, and losses given default also increased slightly in the same period, according to the Bank of England Credit Conditions Survey for Q3.
Both were expected to increase in the fourth quarter as the impact of higher interest rates hits households hard.
Lenders also reported that demand for mortgage lending and remortgaging decreased in Q3, and was expected to decrease further in Q4.
In addition, the availability of secured credit to households decreased in Q3 and is expected to decrease slightly over the next three months.
Speaking to Newspage, Jamie Lennox, director of Dimora Mortgages, commented: "That default rates continue to increase comes as no surprise given that more consumers are starting to land on considerably higher mortgage rates. 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."
Darryl Dhoffer, director at The Mortgage Expert, warned another base rate rise could cause even more pain for homeowners: “There are no surprises here with these figures. Borrowing is down on mortgages, unsecured debts are level or mounting, and defaults on unsecured debts will be increasing as we move into the last quarter of this year. Let's hope the next set of inflation figures show a level or downward curve, because any future base rate rises will only make these figures worse as we move into 2024. Consumers are really struggling right now.”
Craig Fish, director at Lodestone Mortgages & Protection, added: “The results of this survey come as no surprise. The purchase market is virtually non-existent. With increased rates and falling house prices, people have decided to wait until things settle before making any moves. Furthermore, due to the incompetence of the Bank of England resulting in 14 consecutive rate rises, it is no surprise that, as people come off historically low rates on much higher options, they will struggle to meet their mortgage payments. I fear that we are only going to see these numbers worsen and default rates increase. It will get worse before it gets better. There is going to be nothing festive about the upcoming festive season.”
Stephen Perkins, managing director at Yellow Brick Mortgages, agreed that conditions could deteriorate in the months ahead: “With a lot of households yet to be impacted by increased mortgage rates, things will almost certainly get worse in the fourth quarter and it could be a long time before we see any light at the end of the tunnel.”
Ranald Mitchell, director at Charwin Private Clients, agreed: “As expected, people are struggling to manage and are turning to unsecured credit as a pathway to survive. Unfortunately, it usually worsens their situation. The arrears figures provide a clear view that households are finding it hard to cope, and with more fixed-rate maturities around the corner, you can only expect this to increase. Grim times lie ahead.”
Justin Moy, managing director at EHF Mortgages, concluded: "This survey shows that mortgage lending continues to decline, even with the recent trend of improving rates across the market. Product Transfers are still by far the most popular choice, which stops the traditional debt consolidation cycle and, as such, unsecured credit needs are rising. Many will be left without the 0% credit card rates and low mortgage rates and will need more than belt-tightening in 2024. Overall this survey confirms what everyone has been reporting for months, and the next couple of reports will define our country before an election is called."
