The Bank of England’s (BoE’s) Credit Conditions Survey found that lenders gave a response score of 30.9 per cent* when asked about the default rates on mortgages, indicating that this had risen during the period.
The survey was conducted between 30 May and 16 June so did not capture the impact of recent market uncertainty or the base rate rise to five per cent.
Looking ahead, lenders suggested that default rates would increase, as indicated by a response score of 41.2 per cent.
Losses on mortgages during Q2 generated a score of 8.3 per cent, but this is predicted to rise significantly as cited by 28 per cent of lenders.
Riz Malik, director of R3 Mortgages, said: “It is highly troubling to see that the rates of default on secured loans are escalating and are anticipated to rise further. Equally distressing is the projection from the BoE that the supply of secured credit is set to diminish in the forthcoming quarter.
“At what stage does the disheartening economic statistics the BoE disseminates become uncomfortable for them, especially when they are aware that their own actions have in some way shaped this dismal outlook?”
Stephen Perkins, managing director at Yellow Brick Mortgages, added: “They’re already rising, but lenders are expecting losses and default rates on secured loans to increase even further in the next quarter, which is unsurprising given the heights interest rates are now reaching. Demand for mortgages is also expected to fall in the third quarter, which again is what you would expect in such a brutal economic climate.”
Perkins said the central bank’s strategy of putting up the base rate to temper rising inflation had little impact and was “massively impacting the economy”.
He added: “We need to look at a different approach and select a different tool for the job. The repeated use of the base rate hammer is not turning the inflation screw and is merely causing untold damage.”
Demand for mortgages to fall
Demand for mortgages in Q2 was positive at 52.7 per cent but this is expected to fall back in Q3, according to a lender response score of -30.1 per cent.
This is predicted to be prevalent across all parts of the market.
Lenders gave a score of 53.6 per cent for prime mortgage lending in Q2, but expected it to drop as indicated by a score of –30.1 per cent for the next three months. Buy-to-let mortgage demand was at 33.3 per cent in Q2 but fall to -26.2 per cent in Q3.
Remortgage demand was recorded at 51.3 per cent among lenders, but again, this is set to weaken to -17.5 per cent in Q3.
Justin Moy, founder at EHF Mortgages, said the survey confirmed was his firm was seeing, with the demand for mortgages decreases, rising defaults, missed payments and less appetite to borrow.
He added: “Borrowers are attempting to reign in their unsecured debt, often using family savings, including from the Bank of Mum and Dad, to reduce outgoings, as it’s the only way to afford these brutal mortgage payment increases.
“Unfortunately, some won’t have that option and will inevitably default at some point. I’m not sure if the report actually reflects the current strategy of reducing inflation, but this shows that borrowers are suffering, and will suffer more over the next 12-18 months at least.”
Loan availability tightens
Lenders said the availability of mortgages decreased in Q2 and was set to contract further in Q3.
There is also set to be less will to lend to people with equity of 10 per cent or lower, with a lender score of 7.4 per cent in Q2 and a response score of -0.3 per cent in Q3.
Loan criteria is expected to tighten too. This came to a score of -8.7 per cent in Q2 and was predicted to be -15.2 per cent in Q3.
* 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.
