A growing proportion of UK lenders are seeing a rise in defaults on their loans to households and companies, as rising interest rates continue to squeeze borrowers, official data showed on Thursday.
Responding to the Bank of England’s credit conditions survey, a net 14 per cent of banks and building societies said more households had defaulted on secured loans, such as mortgages, in the three months to the end of February compared with the previous quarter.
The net balance was well above the negative 1.4 per cent recorded in the previous three months to the end of November 2022, where the sub-zero value pointed to a decrease in the default rate.
Excluding a peak of 20.3 per cent in the first three months of 2021, when Covid-19 restrictions were still in place, the figure was the highest since the second quarter of 2009, during the global financial crisis. It was also well above the minus 13 per cent average since 2010.
“The uptick in defaults . . . underlines the daily struggle for many households to keep on top of rising prices,” said Myron Jobson, senior personal finance analyst at investment platform Interactive Investor.
Many respondents to the survey, which ran between February 27 and March 17, said they expected default rates to rise further.
Although the poll’s reference period excludes the fallout from the collapse of the US’s Silicon Valley Bank and the forced takeover of UBS by Credit Suisse, lenders’ expectations for the next quarter might have been affected by the recent banking turmoil.
The sharp increase in default rates follows 11 consecutive interest rate rises by the BoE’s Monetary Policy Committee, which are reflected in the rising level of loan repayments for households and businesses.
As part of efforts to bring down high inflation, the MPC last month lifted rates by 0.25 percentage points to 4.25 per cent, a 15-year high.
“Adding interest and repayments to the ever-growing mountain of monthly costs could prove to be one plate too many for a large number of Britons,” said Jobson.
Thursday’s data also showed that lenders had made more mortgages available to households in the three months to the end of February, with the net balance soaring to 5 per cent from minus 34 per cent in the previous quarter. That is the first time this measure has been positive in more than a year.
Andrew Wishart, senior property economist at research group Capital Economics, said the “improvement in the availability of mortgage credit . . . appeared to reflect an end to the pull back in high loan-to-value lending” sparked by then chancellor Kwasi Kwarteng’s “mini” Budget in September last year.
His announcement of £45bn of unfunded tax cuts sent gilt yields soaring, forcing many lenders to withdraw fixed-rate mortgage deals for new customers and reinstate them with higher rates.
But lenders said they expected mortgage availability to fall back into negative territory in the three months to the end of May, “which may well reflect concerns stemming from the collapse of SVB and takeover of Credit Suisse”, said Wishart.