Mortgage defaults have risen for an eighth consecutive quarter as UK households struggle with higher borrowing costs amid a cost of living crisis.
According to the Bank of England’s latest Credit Conditions Survey for Q4 2024, lenders reported an increase in default rates on secured loans to households. Losses given default on these loans continued to climb in the fourth quarter of last year and are anticipated to rise further in the coming months.
The survey also revealed an increase in the availability of secured credit during the three months leading up to November 2024, with lenders forecasting a further expansion in the availability of such credit over the next quarter.
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Karim Haji, global and UK head of financial Services at KPMG, said: “These latest figures mark the eighth quarter in a row where lenders have reported a rise in mortgage defaults. This points to the financial strain on households as many are hit by higher mortgage rates in an environment which is still challenged by high cost of living and uncertain future interest rates.”
Haji added that, given the ongoing pressures of weak UK economic growth and persistent inflation, defaults could continue to increase in the months ahead.
“Recent shifts in expectations on when and by how much interest rates are likely to fall mean households might expect more financial pain for longer,” he said.
“The slight rise in unsecured lending suggests households continued to struggle with cost of living challenges in the run-up to Christmas, which can be an expensive period for many.”
The report shows that lenders expect demand for secured lending for house purchases, and for remortgaging, to decrease in the January-March quarter. That would follow increases in October-December.
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Simon Gammon, managing partner at Knight Frank Finance, said: “Clearly, the lenders think that the beginning of 2025 will be another period of sluggish activity in the housing market. As things stand, this is likely to prove true.
“On Wednesday afternoon, two large lenders said they would increase the cost of some mortgage products — the first of the major lenders to do so since the latest round of bond market volatility.
“That will probably prompt others to follow, which will be disappointing for anybody seeking to purchase or remortgage a home in the months ahead. That said, fairly positive inflation data from both the UK in and the US this week has calmed bond markets, which suggests we’ll see a swift repricing, rather than weeks of sustained increases in mortgage rates.”
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