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Latest Bank of England of England data has reported that lenders have seen mortgage defaults rose in the three months to the end of September and are expected to do so again in the last three months of 2024.
The recent rise in default rates was lower than the banks had expected. However, in the last three months of the year, default rates are expected to rise faster than any time since Q3 2023.
A net percentage balance of 12.5 lenders said home loan defaults increased in the third quarter, compared to a balance of 24 over the previous three months with 31.1 lenders estimating this will increase in the run-up to Christmas.
This is the seventh quarter in a row in which lenders have reported a rise in default rates on secured loans.
In the second quarter of the year, there were 96,070 homeowner mortgages in arrears of 2.5% or more of the outstanding balance in the second quarter of 2024, broadly unchanged from in the previous quarter, according to UK Finance figures. Meanwhile, default rates on unsecured lending, like credit cards, fell.
Karim Haji, Global and UK Head of Financial Services at KPMG, said “These latest figures suggest that many households are still struggling in the current environment. Unsecured lending demand, while stable, remained elevated compared to the first quarter of the year. A fall in default rates for unsecured lending is an encouraging sign and reflects the cautious approach to credit being taken by households.
“Inflation could rise to 3% in early 2025, driven by higher energy prices and some forecasts predict headline inflation may return to target by the end of next year. This will take time to feed through to household finances. Coupled with the Bank’s cautious stance on interest rates, household spending power may not be unlocked any time soon. Even then, we are seeing a shift in consumer behaviour over the medium to longer term which is focused on saving not spending.
“Improvements in default rates can be short-lived so lenders mustn’t take their eye off the ball and ensure that they’re prepared to step back in to support under-pressure consumers.”
Sarah Coles, Head of Personal Finance at Hargreaves Lansdown. said “Mortgage default rates are mounting, and we’ve not yet reached the peak. Banks expect them to be up again by the end of the year.
“Given that those on lower incomes don’t tend to have mortgages, it demonstrates that higher mortgage rates are hitting middle-earners hard. Anyone who has overstretched themselves in the property market, or took on too many fixed costs while mortgage rates were lower, has faced a Herculean task when they remortgaged.
“The HL Savings & Resilience Barometer showed that 13% of households who have had to remortgage onto higher rates have poor financial resilience, and on average they have just £315 left at the end of the month – £95 less than those who have yet to remortgage.
“The positive news is that mortgage rates are falling, so there’s a smaller step-up in monthly payments when people remortgage. However, these figures clearly show that for an awful lot of people, this is too little, too late.”
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