More households and businesses are expected to default on their loans in the coming months
According to a Bank of England survey, lenders expect the availability of mortgages and consumer and business credit to decline in the coming months as more people and businesses default on their loans.
Default rates on mortgages, credit cards and other household and business loans are expected to rise in the coming months.
The Credit Conditions Survey asked banks and building societies about the changes they expect to see between September and November, compared to the three months between June and August.
Lenders have indicated that the availability of mortgages for households has already fallen in the three months to the end of August – and is expected to fall further in the coming months.
The supply of non-mortgage credit to households has also fallen slightly and is expected to decline further.
The overall availability of business credit remained unchanged and is expected to decline slightly in the coming months.
The last survey was conducted between August 30 and September 16 – a period before the mini-budget, which took place on September 23.
The number of available mortgages plummeted in the days following the mini-budget amid market volatility. As transactions returned, average mortgage rates rose.
Figures released by Moneyfacts.co.uk on Thursday indicated that there has been some stabilization in average mortgage rates over the past two days, following rapid increases.
The average two-year fixed rate mortgage is now 6.46%, unchanged from Wednesday.
A typical five-year fixed-rate mortgage is 6.28%, down slightly from 6.32% on Wednesday.
On Mini-Budget Day, the average two-year fixed contract was 4.74% and the average five-year fixed mortgage was 4.75%.
The Bank of England’s base rate hikes, amid high inflation, have helped push up borrowing costs in recent months, and further base rate hikes are expected.
At the beginning of December last year, two-year and five-year fixed rate mortgages averaged 2.34% and 2.64% respectively.
The results of the Bank of England survey are based on lenders’ responses and do not necessarily reflect the views of the bank.
The higher cost of borrowing will mainly hit those looking for larger loans
The survey also revealed that lenders expect demand for mortgages from homebuyers to decline over the next few months, but believe demand for remortgages will increase.
Demand for credit card loans should also increase slightly, but the duration of interest-free periods on new credit cards for purchases should decrease.
Lenders also expect to see a slight increase in loan demand from small businesses and unchanged levels of demand from medium and large businesses.
Richard Donnell, executive director of property website Zoopla, said: “We have seen an increase in asking prices, but at levels that remain lower than what we saw in 2018.
“The impact of weaker demand on prices will take time to kick in and won’t become clear until the new year as many potential sellers, especially those without cheap financing, will pull out of the market and consider the outlook as we enter 2023.
“While we’ve seen a lot of focus on mortgage rates, it’s important to note that a quarter of buyers are not using any mortgages and many more have small loans, so the cost higher borrowing will primarily affect those seeking larger loan sizes.”
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