Losses and default rates on mortgages have increased in the past few months and are expected to rise further in the months ahead, according to a Bank of England survey of lenders.
Default rates for non-mortgage lending are also expected to increase slightly by the end of August, the Bank’s credit conditions survey found.
Corporate lending default rates are also expected to increase for small businesses in the months ahead, while remaining unchanged for medium and large businesses.
Mortgage rates have jumped in recent months amid expectations that interest rates will stay higher for longer, to combat stubbornly high inflation.
- Two years, 6.75%
- Five years, 6.27%
According to figures released by Moneyfactscompare.co.uk on Thursday, the average two-year, fixed-rate mortgage for homeowners across all deposit sizes is 6.75%, while the average five-year fix on offer has a rate of 6.27%.
According to figures from UK Finance, about 2.4 million fixed-rate mortgages are due to end between now and the end of 2024.
The Bank’s latest credit conditions survey was carried out between May 30 and June 16, asking lenders to report changes in the three months to the end of May, relative to the previous three months.
Lenders were also asked about the changes expected in the three months to the end of August.
The results do not necessarily reflect the Bank of England’s views on credit conditions.
In signs of a further squeeze on households, lenders also anticipate that the length of interest-free periods on credit cards for balance transfers will shrink in the next few months.
The length of interest-free periods on new credit cards for purchases is also predicted to decrease.
The availability of mortgages and non-mortgage credit to households is expected to decrease in the three months to the end of August, the survey found.
Lenders believe the availability of credit to businesses will be unchanged over the same period.
Demand for mortgages from home buyers and for re-mortgaging had increased in the previous three months, but is expected to fall in the three months ahead.
Demand for corporate borrowing in the three months ahead is expected to be unchanged for businesses of all sizes.
Chancellor Jeremy Hunt recently held a summit with mortgage lenders and a new mortgage charter was agreed to support those who are struggling.
Lenders will be able to offer borrowers a switch to interest-only payments for six months, and an extension to their mortgage term to reduce their monthly payments, with the option to switch back within six months.
Both options can now be offered without an affordability check.
Lenders have been urging borrowers who are struggling, or who think they may struggle, to contact them as soon as possible to discuss their options.