Banks have sounded the alarm as default rates experienced a surge in the final quarter of 2023, though at a slower pace compared to the preceding quarter, raising apprehensions about a potential worsening of the situation.
According to the latest quarterly credit conditions survey released by the Bank of England just before the weekend, lenders reported a rise in default rates on secured lending, including mortgages, during the October-to-December period. While the net balance of lenders reporting an increase in defaults decreased to 23.6%, down from 43.3% in the previous quarter, indicating a deceleration in the growth of defaults, concerns linger as a net 39.7% of lenders anticipate a resurgence in default rates in the near future.
The Bank of England’s data reveals that mortgage arrears reached a six-year high in the three months to December. However, experts emphasize that this increase is from historically low levels, with only 1.14% of total loans in arrears. This figure, though elevated, remains significantly lower than the 3.64% recorded in the first quarter of 2009.
In response to these developments, industry experts shared their insights on the current financial landscape:
Stephen Perkins, Managing Director at Yellow Brick Mortgages:
“The incessant pressure on household finances is evident in the form of continued rises in the level of defaults on secured and unsecured debts. After cutting back where possible and exhausting all available credit options, many households are now at breaking point. Rate reductions on mortgages will help some but are coming too late for many. These figures will look even worse over the coming months. For many, the mortgage rate reprieve we’re currently in will sadly be too little, too late.”
Michelle Lawson, Director at Lawson Financial:
“Sadly, I don’t think these stats are much of a surprise. There is literally no money left anywhere and households have had so much pressure with increased mortgage costs, inflation-hit shopping, and astronomical utility bills. People can only take so much before things start to break. Property isn’t easy to sell at the moment if there is a downsizing option and this also doesn’t come without costs. I would expect these default figures to rise further as some households will be left with nowhere to go. Many people have simply run out of road.”
Hannah Bashford, Director at Model Financial Solutions:
“Sadly, I don’t find this data surprising, and I don’t think we have seen the worst of the level of defaults. The interest rate rises that have increased expenditure have been compounded by the cost of living crisis and have not yet filtered through into the data. While households hang on by their fingertips using unsecured credit or savings to help make repayments, it is inevitable that some simply won’t be able to keep up and will default. The interest rate decreases we are currently seeing will go some way to help, but sadly it is going to be too late for some.”
Riz Malik, Founder and Director at R3 Mortgages:
“The increase in default rates is concerning and highlights that we are certainly not out of the woods yet. Those who are struggling should speak to their lender or seek advice to see if there are any other options to restructure their debt as early as possible.”