In the Bank of England’s (BoE’s) Credit Conditions Survey, lenders gave a score of 24% for default rates on secured loans to households, suggesting a rise over the quarter.

Looking ahead, lenders returned a reading of 34.3% for the next three months, pointing to more defaults to come. 

The money lenders lost from defaults rose in Q2, with a score of 11.5% in Q2, up from -10.2% in Q1. This is expected to be unchanged in Q3, with a more neutral score of 4% over the next three months. 

Tom Cuppello, director of risk at Broadstone, said: “The Bank of England’s latest Credit Conditions Survey demonstrates how rate rises continue to impact households. Defaults on mortgages and credit products both rose through the last quarter as the increased borrowing costs weighed on consumers. 

“The Bank of England also forecasts defaults to continue growing over the next three months as more people face the reality of higher-for-longer rates on their borrowing. 

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Cuppello added: “It follows recent data from the Financial Conduct Authority [that] showed that the value of outstanding mortgage balances with arrears increased by 4.2% through Q1 2014, to £21.3bn, and was 44.5% higher than a year earlier. The economic situation is biting but demand for borrowing remains high amid a continued cost-of-living crisis that is driving more consumers to the credit market. 

“Lenders need [to] ensure they are supporting the long-term financial interests of their customers. The Government’s Mortgage Charter, the advent of Consumer Duty and additional regulation demonstrate that the legislative direction of travel is towards protecting borrowers in turbulent economic times.” 

 

Rise in purchase demand, fall in remortgage activity 

Lenders gave a reading of 32.6% regarding the demand for house purchase loans in Q2, suggesting healthy activity in the market. This was slightly down from the score of 35.9% given in Q1.

Looking ahead, this demand is expected to remain flat, with lenders giving a reading of just 1% for the next three months. 

The demand for buy-to-let (BTL) lending returned a score of 14.2% from lenders, and is forecast to hold up in Q3, according to the modest lender score of 6.4%. 

Lenders reported a decline in demand for remortgage, giving a reading of -20.4% in Q2. A slight recovery in remortgage activity is expected in Q3, based on a score of 6.8% going forward. 

 

Mortgage lenders’ appetite grows 

Lenders said the availability of mortgages was unchanged in the quarter to May, giving a score of 2% for the period. This is set to rise slightly in Q3, as lenders returned a reading of 8.5%. 

An improvement in the economic outlook, market share objectives and an improvement in house prices were some of the driving factors behind the rise in mortgage availability, lenders said. 

During Q2, lenders’ willingness to lend to borrowers with less than 10% equity rose from 5.9% in Q1 to 14.4% in Q2. 

However, this is expected to contract in Q3, with lenders giving a score of -1.7% for the period.