Banks to rein in household lending amid rising defaults
Lenders are bracing themselves for higher defaults from mortgages and unsecured consumer credit, as rising interest rates take their toll on personal finances.
The Bank of England polled banks and building societies for its second-quarter credit conditions survey.
They reported higher default rates on mortgages in the three months to May, and forecast further increases in the following three months.
Default rates for unsecured consumer loans were unchanged in the second quarter but were expected to tick up in the third quarter.
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Lenders are expecting to rein in the availability of secured and unsecured credit to households in the three months to August.
“The latest BoE poll of lenders lays bare the devasting impact the mortgage crisis and stubbornly high inflation is having on personal finances,” said Myron Jobson, senior personal finance analyst at Interactive Investor.
“The significant increase in mortgage rates have pushed tight household budgets to breaking point, evidenced by an uptick in losses and default rates on mortgages reported in the second quarter. And lenders expect matters to worsen in the third quarter as a Damocles sword hovers precariously over household budgets with the cost-of-living, particularly housing costs, expected to remain elevated. It is therefore unsurprising that lenders are expected to tighten their belts and reduce the supply of home loans as a pre-emptive measure to offset anticipated credit losses.”
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Lenders also reported that demand for mortgages increased in the second quarter and was expected to decrease in the third quarter.
However, demand for unsecured consumer finance increased in the second quarter and is expected to increase again in the third quarter.
“The growth in demand for mortgages from would-be and existing homeowners suggests that many borrowers were keen to get deals on the table, which usually valid for up to three to six months, as storm clouds brewed over the mortgage marketplace,” said Jobson.
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“Lenders are anticipating demand for home loans to fall in the current quarter, as high mortgage rates continue to price many would-be buyers out of the market until rates stable and ease to more acceptable levels.
“Interestingly, demand for loans and other forms of unsecured credit increased in the second quarter and is predicted to go up slightly in the current quarter, with people increasingly relying on the plastic and loans to make ends meet amid the current cost-of-living storm.”