TSLE 2024: Unsecured credit stress not high but rise in arrears expected

Speaking at The Specialist Lending Event in Birmingham, Lee Hopley (pictured), director, economic insight and research, UK Finance, said that while there had been a buffer of savings built up during the pandemic there was a sense now that that had “run into the sand” pointing to lower retail sales during the festive period.

However, she said that the “good news” was that UK Finance had “not actually seen a lot of stress on the unsecured credit side”.

“It’s not like people have built up a lot of debt on credit cards, taken out loans or overdrafts which could also impact on their ability to move forward with a house purchase, for example, but it’s something we’re keeping an eye on.

“I have mentioned that that sort of belt-tightening among consumers is probably going to continue for the next couple of quarters,” she added.

Hopley added that there had also been a rise in arrears and that trend was likely to continue.

Lending recovery not expected until 2025

Hopley said that 2023 was a “tough year” coming off  “strong growth” following “temporary incentives” during the pandemic.

“Cost of living pressures, interest rate raises and affordability challenges across the market have really put the brake on the residential market so we are looking at a contraction of around a quarter. We will see falls of that magnitude this year, but we are not looking at a recovery in prospects until 2025,” she added.

Hopley added that the buy-to-let sector had had a “dog of a year” in 2023 and it was looking at similar falls in lending this year but not of the same magnitude. However, it would still be a “really difficult year” this year and there would be “minimal recovery” in 2025.

She added that 1.6 million people would be coming off fixed rates this year and that would be “where the opportunity is”.

Interest rates will come down but not at pace

Hopley continued that interest rates may come down this year but “not to the degree that they really need to get more first-time buyers and home movers over that opened-up affordability hurdle.”

She said: “There’s a lot more competition in market, you can see a bit more competitive pricing with the expectation that we’d be looking at lower interest rates over the course of this year. There’s some quite punchy predictions of the base rate perhaps falling by perhaps 100 basis points and I’m not quite there.

“I don’t think the majority of economists are quite that optimistic about the scale and the pace of bank rate cuts this year. Inflation is still up four per cent, wage inflation is still running at 6.5 per cent and the labour market is still tight. There are also a lot of geopolitical factors that present a real upside risk to inflation in terms of supply chain disruption, such as the war in Ukraine and escalation in the Middle East.”

Hopley said that with that geopolitical instability that it was unlikely that Bank of England “would necessarily be comfortable just looking through that and cutting interest rates regardless”.

“I’m cautious on that sort of narrative and I think it’s quite unhelpful sometimes for the media to say, well, inflation is falling so when’s the Bank of England going to cut. It’s not that simple an equation right now,” she added.

There is still time to register for The Specialist Lending Event. Events are taking place next week in Wetherby and Bolton.