Mortgage default rates increased in the second quarter of 2024, and banks and building societies are bracing for the biggest rise in defaults in a year over the next three months
UK lenders are anticipating a further rise in default rates on home loans in the coming months, according to a BoE survey, as mortgage holders face higher refinancing costs.
Mortgage default rates increased in the second quarter of 2024, and banks and building societies are bracing for the biggest rise in defaults in a year over the next three months, the Bank of England’s latest credit conditions survey showed.
In its bid to tame runaway inflation, the BoE’s 14 successive rate hikes between December 2021 and August 2023 have put pressure on household borrowing.
As more and more households’ mortgages come up for renewal, it follows that with significant increases in monthly repayments the number of defaults could increase, according to Karim Haji, global and UK head of financial services at KPMG.
Given the improving economic outlook, any upward momentum in defaults should be short lived, although lenders should remain vigilant, he added.
The BoE’s survey also found that mortgage availability is anticipated to increase slightly over the third quarter, with lenders noting higher demand for home loans over the past few months even as mortgage rates remained higher.
Lenders said they expected to leave the availability of non-mortgage credit to households unchanged in the third quarter, while the availability of loans to businesses is also set to be unchanged.
For the second quarter, lenders reported a marginal rise in default rates on credit cards, although these are expected to be unchanged over the coming months.
With inflation back to the BoE’s 2% target, traders are betting on an interest rate reduction in August or September. However, policymakers are still concerned about price and wage pressures, with a second cut not expected until early next year.