Mortgage lenders saw an increase in the number of customers defaulting on their loans in the three months to the end of June, and expect more borrowers to miss payments in the coming months.
Lenders responses to the Bank of England’s Credit Conditions Survey revealed a 30 per cent increase in mortgage defaults in the second quarter of the year.
This was an increase compared with the three months to March, when the proportion of missed payments increased by 14 per cent.
Lenders expect defaults to increase again in the third quarter, as rising interest rates and inflation continue to batter household finances.
Turbulent times: Rising mortgage rates and increased household costs have led to a spike in missed payments
Stephen Perkins, managing director at broker, Yellow Brick Mortgages, said: ‘They’re already rising, but lenders are expecting losses and default rates on secured loans to increase even further in the next quarter, which is unsurprising given the heights interest rates are now reaching.
‘Demand [for credit] is also expected to fall in the third quarter, which again is what you would expect in such a brutal economic climate.
‘Repeated increases to the Bank of England base rate have done nothing to curb inflation and are massively impacting the economy and pushing millions of British families’ finances beyond the brink.’
Overall, lenders expect the availability of secured credit such as mortgages to fall by 19 per cent in the third quarter of the year.
However, demand for secured home lending increased from April to June this year despite the mortgage market volatility. Demand for both home loans to purchase a property, and to remortgage, increased by 53 per cent over the period.
Lenders expect this to fall sharply as households face the reality of significantly higher interest rates.
Demand for unsecured lending has increased ovder the past three months and is set to rise further as households manage inflation
The Bank of England made its thirteenth successive base rate rise last month after disappointingly high inflation in May led the Monetary Policy Committee to continue its efforts to bring the figure down.
Two-year fixed mortgage rates have reached a 15-year high, surpassing the level reached at the peak of the fallout from the mini-Budget in October last year.
The current average two-year fixed rate is now 6.75 per cent, according to Moneyfacts, and the market expects rates to climb further before the end of the year.
Demand for credit cards also increased by 25 per cent in the second quarter of the year, highlighting the extent to which households are relying on credit to manage the impact of price inflation on budgets.
Lenders expect this to rise again by 10 per cent over the three months from June.
