UK bank expects mortgage defaults to rise amid cost of living
British lenders plan to cut mortgage rates amid concerns that borrowers will default on repayments as the cost of living worsens the crisis.
The Bank of England‘s (BoE) quarterly credit conditions survey showed lenders plan to reduce the supply of mortgages to the market at the fastest rate since the start of the coronavirus pandemic.
With the exception of the crisis Covid, the expected rate of decline was more pronounced in a single quarter in 2014 and in the immediate aftermath of the global financial crash of 2008.
The survey, conducted within three weeks, shortly after Ukraine invaded Russia, provided no explanation for its intention to tighten loans on the property. However, lenders have warned they expect defaults to increase in the next three months.
“The balance of the net percentage changes in default rates on secured lending to households is expected to increase in the second quarter,” the investigation of the Bank of England said.
Read more: UK inflation hits 30-year high of 7% as cost of living crisis deepens
It comes as UK households face a tight cost of living crunch as interest rates rise to rein in soaring inflation, which hit a 30-year high of 7% in March. Higher interest rates make mortgages more expensive to pay off.
The decision to cut residential real estate loans follows 18 months of a scorching real estate market, with booming growth in house prices hitting a six-month high last month, according to Halifax.
The BoE survey also found that the margin earned by banks on products narrowed in the first quarter.
But, loan on the property market tightens lenders still plan to intensify the provision of unsecured debt such as personal loans and credit card debt. Demand for both as well as the supply of unsecured credit increased last year and is expected to remain strong over the next three months.
Read more: UK house prices register biggest rise in six months
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “With inflation accelerating and skyrocketing prices for many essentials, it has forced us to borrow to make ends meet.
“Borrowings by credit card grew faster than any other month on record in February – the most recent month for which we have data.
“But although it looks like a short-term solution, creating problems for the future as you add interest and repayments on the mountain ever increasing monthly costs, making it increasingly difficult to stay on top of our finances each month. “
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