The number of people defaulting on their mortgage and other loans is set to rise during the final three months of this year, research shows
Borrowers could find it harder to obtain mortgages and other loans over coming months as default rates look set to rise, according to a Bank of England survey.
The research revealed that the number of people defaulting on their mortgage and consumer loans is poised to increase during the final three months of this year, underlying the pressure on household budgets as the financial impact of the coronavirus takes its toll.
The Bank of England’s credit conditions survey of banks and building societies, carried out in September, found lenders anticipate they will tighten their credit scoring criteria over the next few months.
Tighter credit scoring criteria will make it harder for some households to qualify for a mortgage.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: Borrowers who have found it harder to get a mortgage will not be surprised to hear that lenders tightened criteria in the third quarter and expect to tighten further in the run-up to the end of the year.
Figures published in the latest Moneyfacts UK Mortgage Trends Treasury Report show that the average two-year fixed mortgage rate has increased by 0.14% month-on-month, up from 2.24% at the start of September to 2.38% on 1 October.
Meanwhile, the average five-year mortgage rate has increased by 0.13%, up from 2.49% in September to 2.62% in October.
Eleanor Williams, finance expert at Moneyfacts.co.uk, said: This increase in rates is likely in part due to proportion of a rate that a provider needs to attribute to the risk of default, which may be a concern as a result of the economic outlook remaining so unclear.
For example, the spectre of negative equity should house prices drop from their current levels is one that responsible lenders will be keen to mitigate, yet have no control over. Similarly, uncertainty around future employment levels and income as government support schemes begin to unwind is another factor that lenders may be considering, Williams said.
Andrew Montlake, managing director at mortgage broker Coreco, said that in some cases lenders are increasing rates to stave off demand.
He commented: We’re now starting to see demand for mortgages drop off at higher loan-to-values, as first-time buyers with small deposits are increasingly aware that the chance of getting a mortgage agreed are somewhere between slim and zero.
Montlake said, we all know the economic pain that’s in the post so it’s no real surprise that the banks are pulling down the shutters for those with smaller deposits. What we need to avoid, however, is banks catastrophising and pulling products for more robust borrowers at lower loan-to-values.
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