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Lenders report rise in defaults in Q1 – BoE
Lenders have noted an increase in the default rates on secured loans to households in Q1 and predict this will continue to rise in Q2.
The Bank of England (BoE) Credit Conditions Survey found the response score for lenders reporting a rise came to 14 per cent in Q1*.
For the next three months, lenders gave a 36.1 per cent response for defaults suggesting they would increase further in Q2.
The losses on the default of secured loans rose in Q1 and were expected to continue rising in Q2.
Increased demand for lending
The availability of secured credit to households was flat at 4.7 per cent in Q1.
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Looking ahead, however, this is set to decline with lenders reporting a score of -20.2 per cent for the availability of secured credit to households. Lenders cited the economic outlook, changing risk appetites and house price expectations as some of the factors which would have a negative impact on loan availability.
Demand for all types of lending stayed in the negative in Q1, with a lender score of -30.8 per cent for house purchases, compared to -75.4 per cent previously. In the near term, this is predicted to improve with a score of 35.3 per cent.
Demand for buy-to-let lending was also down at -30.8 per cent. However, this is set to rise in Q2 with a lender score of 35.3 per cent for the three months to May.
Remortgage demand declined too, with a score of -38.6 per cent in Q1, but is expected to return over the coming quarter with a response score of 48.8 per cent for the next three months.
Credit quality and criteria
The average credit quality of the loans lent in Q1 improved with a reading of 14.6 per cent, but over the next three months, this was expected to deteriorate as suggested by -8.4 per cent of respondents.
Lending criteria was still tight in Q1, respondents suggested, with a net balance score of -14.2 per cent. Going forward, this is set to continue to be restrictive as indicated by a score of -13.9 per cent.
Loans issued to borrowers with low loan to value (LTV) ratios was flat at 3.2 per cent but expected to slip in the three months to May, with a lender score of -5.6 per cent. Lending to those at high LTVs was also flat at 0.3 per cent in Q1 but this is set to contract significantly over the next three months, with a lender response score of -28.9 per cent.
* The survey’s results are calculated with net percentage balances which vary between scores of negative 100 and 100 depending on how many lenders report positive or negative changes and is weighted by their market share.