Lenders report increase in default rates in Q1

Default rates on both secured and unsecured loans to households and loans to both small and medium-sized corporates have increased in the first quarter of the year.

According to the latest Credit Conditions Survey from the Bank of England (BoE), default rates in all these categories are expected to increase further in the second quarter.

Default rates on loans to large businesses were unchanged in the first quarter and are expected to remain unchanged in the second quarter.

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The findings are part of a quarterly BoE report, with this one presenting the results of a survey conducted between 27 February and 17 March 2023. The results are based on lenders’ responses to the survey.

The survey also found that overall spreads on secured lending to households, relative to the bank rate or appropriate swap rate, narrowed in the first quarter, and were expected to narrow further in the second.

The same was the case for unsecured lending to households, while spreads on corporate lending to small businesses was unchanged, but had slightly narrowed for medium-sized businesses, and widened for large businesses.

Demand for lending across the board was also down in the first quarter, but it is expected to increase slightly for households in the second quarter.

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In terms of supply, lenders reported that the availability of secured credit to households was unchanged in the three months to the end of February 2023. Lenders expected availability to decrease over the next three months.

The availability of unsecured credit to households decreased over the same period but was expected to increase slightly in the second quarter.

Meanwhile, the overall availability of credit to the corporate sector was unchanged in the first quarter, remaining unchanged for businesses of all sizes. This was expected to remain the case in the second quarter.

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