Lenders reported an increase in defaults on both mortgages and unsecured credit over the three months to the end of February, the latest Bank of England survey shows.
The availability of secured credit increased in the three months to the end of February.
Demand for remortgaging increased but demand for house purchase was unchanged over the same period
Both measures are expected to rise over the three months to the end of May.
Default rates on secured loans to households slightly increased to the end of February but are expected to decrease slightly over the current quarter, the BoE’s survey shows.
KPMG head of financial services Karin Haji says: “Rising default rates show that underlying pressure is building.
“The impact of the prolonged conflict on fuel prices is adding new pressure on household finances, and the full impact of higher costs and mortgage rates is still feeding through.
“Lenders need to strike the right balance between supporting borrowers and managing risk as uncertainty continues.
“Unchanged demand for house purchase lending suggests high borrowing costs and affordability constraints weighed heavy on big-ticket financial decisions, while the rise in remortgaging points to borrowers continuing to refinance as they come off fixed-rate deals earlier.
“At the same time, stable demand for unsecured lending shows households turning to credit to manage their increasing day-to-day spend.
“While some borrowers are still able to access credit, others are beginning to struggle with repayments, pointing to possible early stages of credit deterioration.”
Banking consultancy Broadstone’s head of regulatory practice Damien Burke says: “The latest survey suggests a cautiously improving outlook for the mortgage market at the start of the year, with lenders expecting demand to pick up in the coming months, particularly for house purchases and remortgaging.
“This reflects a degree of pent-up demand as home buyers awaited lower interest rates and a more certain fiscal landscape.
“However, the timing of the survey is important given it was conducted around the beginning of the conflict in the Middle East.
“The longer uncertainty around the wider global economic consequences lingers, the bigger the impact on borrower confidence is likely to be.
“The fall-out from the Ukraine conflict on inflation and mortgage rates remains fresh in the minds of households and even short-term disruption to supply chains can have a long-term impact on the cost of goods.
“This further amplifies the need for understanding consumer’s individual affordability when assessing them for credit products and the benefit of ongoing assessment.
“The continued stability in unsecured lending demand also highlights a more measured consumer backdrop, with households remaining cautious about taking on additional debt despite some easing in financial pressures.”
