Lenders reported that the availability of secured credit to households increased in the three months to the end of November 2023 (Q4), according to the Bank of England Credit Conditions Survey.
Lenders told the survey they expected the availability of secured credit to remain unchanged in Q1 2024.
Demand for secured lending for house purchase and remortgaging decreased in Q4, but both were expected to increase in Q1 2023.
Overall spreads on secured lending to households – relative to tghe Bank Rate or the appropriate swap rate – widened in Q4, and were expected to narrow in Q1.
Default rates on secured loans to households increased, and losses given default rose in Q4; both were expected to continue increasing in Q1 this year.
In light of the results, Newspage asked brokers what they thought this meant for the market.
Reaction:
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.
“Whilst 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 someway 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.”
Imran Hussain, director at Harmony Financial Services: “I am not surprised by this worrying data a single bit.
“Since Trussonomics took a sledgehammer to the mortgage market, the pressure on families has been immense.
“Despite the mortgage rate cuts of the past few months, this data shows we are not out of the woods.
“Any borrowers who are struggling should speak to their lenders immediately.”
Gary Bush, financial adviser at MortgageShop.com: “The Bank of England Credit Conditions Survey covering the fourth quarter of 2023 makes for sad reading but it is really of no great surprise at all for anyone working in consumer financial services.
“Right now, UK households are being strained to the max. We have first-hand experience also of high street banks appearing oblivious and pressuring consumers over the state of their finances.
“One consumer told one bank recently, ‘The whole country is under pressure, can you relax a little through this?’ and was told in response by a bank: ‘We aren’t finding people struggling much at all, your case isn’t typical’.
“This comment from a banker does strike me as too similar to the Post Office’s corporate response to their postmasters of ‘no one else is having problems with the Horizon systems’. Corporates need to rein in such irresponsible handling of consumers.”
Justin Moy, managing director at EHF Mortgages commented: “The report doesn’t surprise me at all with its findings of defaulting borrowers.
“Both the effects of higher mortgage payments and the cost of living increases have caused financial hardship to many, with more to come as the report suggests, too.
“There does seem to be a move towards making credit more available in 2024, with both mortgages and unsecured borrowing expected to see an upturn, and also the gap between base rate and fixed rate mortgages to narrow shortly, which may mean the base rate is going to have to move very soon.”
Harps Garcha, director at Brooklyns Financial: “The content of this survey is not surprising given the cost of living crisis and the far higher mortgage rates many households are now on.
“With more people set to come off ultra-low rates this year, default rates could get worse before they get better.”
Rohit Kohli, director at The Mortgage Stop: “Interest rate rises take around 12 to 18 months to really feed through into borrowers’ pockets and the data we are seeing this morning is reflective of this.
“We’re likely to see numbers continue to rise in the next couple of months and it would be wise for the both Threadneedle Street and the Goverment to pay attention to these types of indicators.
“Despite the current rate war raging between lenders, many people are still struggling and need help.”
Graham Cox, founder at Self Employed Mortgage Hub: “Unsurprisingly, default rates on both unsecured and secured lending rose in the fourth quarter of 2023 and are expected to increase further in the first quarter of 2024 as the hangover from Christmas kicks in.
“Credit card defaults were particularly affected, as people increasingly rely on them simply to get by.”
Peter Stamford, mortgage expert at The Mortgage Uni: “The rising default rates on secured debts paint a grim picture of the strain on household finances.
“Despite recent mortgage rate reductions, they’re too late for many already at their limit.
“This trend reflects the delayed impact of previous interest rate hikes and the ongoing cost of living crisis.
“With people resorting to unsecured credit or dwindling savings, defaults are likely to worsen.
“It’s crucial for those struggling to seek advice or renegotiate debts, but for some, even this might not be enough.”
Ben Perks, managing director at Orchard Financial Advisers: “The increase in default rates for unsecured lending and credit cards demonstrates how household budgets continue to be squeezed on a monthly basis. Interestingly, demand for unsecured lending has reduced.
“Could this be a sign that people have started to adapt to the higher priced environment we live in? Only time will tell.
“Whilst there was a slight increase in CPI this week, the overall trajectory is downward, as it is with mortgage rates so far in 2024.
“Hopefully these factors will help borrowers as they wrestle with the cost of living crisis and things will start to ease in the not too distant future.”
Amit Patel, adviser at Trinity Finance: “Its no surprise that default rates increased in Q4 2023 and I expect this worrying trend to continue for the next few quarters.
“The Government are hell bent on their Rwanda plan, which is a waste of taxpayers’ money and time.
“They ought to get a grip and find a solution to our economic crisis, which is evidenced by this data.”
