According to Bank of England data released on Thursday, the number of mortgage defaults is expected to rise in the coming months. In contrast, the number of new loans will continue to fall amid warnings that the “golden era” of cheap deals is ending.
The UK central bank’s latest quarterly credit conditions survey paints a gloomy picture, with the number of mortgage deals already falling before the chancellor’s mini-budget on 23 September.
Kwasi Kwarteng’s package of unfunded tax cuts led to chaos for homebuyers, with hundreds of fixed-rate deals withdrawn over the space of a few days before lenders returned with significantly more expensive deals.
Lenders surveyed by the Bank said the availability of secured credit to households, namely mortgages, declined in the three months to the end of August, with further falls expected over the next three months to the end of November. The data gathered before the mini-budget found a similar picture for unsecured personal loans and credit card borrowing.
Credit availability to businesses of all sizes was unchanged in the third quarter but is expected to worsen in the current quarter.
Mortgage rates have shot up: the average two-year fixed mortgage hit 6.46% this week, the highest since the financial crisis in 2008, while the average five-year deal was 6.28%, according to Moneyfacts.
“We are at the end of the golden age for cheap mortgages, and with further interest rate rises seemingly around the corner, homeownership is set to become more costly for many of those on the property ladder and those reaching for the first rung,” said Myron Jobson, a senior personal finance analyst at the investment platform interactive investor.
Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, tweeted: “The Bank of England’s credit conditions survey shows that lenders were preparing to tighten access to mortgages even before the mini-budget. But the mini-budget has greatly hastened the rate of deterioration. Good luck to anyone refinancing right now.”
The Bank survey also showed that default rates on mortgages slightly increased between July and September and were expected to go up further between October and December, while defaults on credit cards and other unsecured loans are also set to rise as the squeeze on household finances from the cost of living intensifies.
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