It's time for would-be-borrowers to get off the fence and lock in a rate before it's too late
Back in 2007, the Bank of England started surveying mortgage defaults – and this quarter sees a new record being set for that survey – the longest ever continuous increase in mortgage defaults. This latest increase means that rates in the UK have risen for the eighth consecutive quarter, driven by higher borrowing costs and the ongoing cost-of-living crisis, according to the Bank of England's Credit Conditions Survey for Q4 2024. The report reveals a troubling increase in defaults on secured loans, with losses incurred in these cases climbing steadily. The bad news is that lenders anticipate this upward trend to persist into the coming months.
Interestingly, the survey also highlighted that there was a rise in the availability of secured credit in the three months leading up to November 2024. And in a silver lining, lenders predict that there will be a further expansion in secured credit availability during the first quarter of 2025, despite ongoing economic uncertainty.
Financial pressure intensifies
Karim Haji, global and UK head of financial services at KPMG, said: “These latest figures mark the eighth quarter in a row where lenders have reported a rise in mortgage defaults. This points to the financial strain on households as many are hit by higher mortgage rates in an environment which is still challenged by a high cost-of-living and uncertain future interest rates.”
Read more: Is the dream of home ownership slipping away? New survey.
Haji also pointed out that weak economic growth and stubbornly high inflation are likely to exacerbate the situation, and expects things to get worse. “Recent shifts in expectations on when and by how much interest rates are likely to fall mean households might expect more financial pain for longer,” he continued.
Unsecured lending and seasonal challenges
Although secured lending availability increased, the survey noted a slight uptick in unsecured lending during the run-up to Christmas, a financially challenging time for many households. This rise suggests that families continued to rely on additional borrowing to navigate rising costs during the festive season.
A quiet start to 2025 predicted for the housing market
Lenders are bracing for a slowdown in demand for secured loans, including mortgages and remortgaging, during the first quarter of 2025. This follows a rise in demand seen in the final months of 2024.
Simon Gammon, managing partner at Knight Frank Finance, remarked: “Clearly, the lenders think that the beginning of 2025 will be another period of sluggish activity in the housing market. As things stand, this is likely to prove true.”
Gammon also addressed recent bond market volatility and its impact on mortgage rates. He noted that some major lenders have already announced rate increases, with more likely to follow: “That will probably prompt others to follow, which will be disappointing for anybody seeking to purchase or remortgage a home in the months ahead. That said, fairly positive inflation data from both the UK and the US this week has calmed bond markets, which suggests we’ll see a swift repricing, rather than weeks of sustained increases in mortgage rates.”
This potential upwards trajectory for rates has made at least one mortgage professional advise clients to lock in the available rates now, rather than procrastinate and maybe lose out. “Borrowers coming to the end of their current deal are still likely to want to secure a new rate a few months ahead of time,” David Hollingworth, associate director at L&C Mortgage told Morningstar. “That will allow them to dodge any further increases if fixed rates continue to rise but still gives them room to review if things take a turn for the better.”
The consensus at the moment is, however, that the Bank of England will cut rates by 0.25% in just a few weeks – with some calling for an even bigger cut to prevent a recession hitting.
Read more: Bank of England under pressure to make 'pre-emptive' interest rate cut
Key findings in the Bank of England report:
- Secured credit to households:
- Availability: Increased in Q4 2023.
- Expectation: Stability anticipated in Q1 2024.
- Unsecured credit to households:
- Availability: Remained unchanged in Q4 2023.
- Expectation: Slight increase projected for Q1 2024.
- Corporate credit:
- Overall Availability: Slight increase in Q4 2023.
- By Business Size:
- Small Businesses: Availability increased.
- Medium and Large Businesses: No change reported.
- Expectation: Slight overall increase expected in Q1 2024.
- Demand for secured lending:
- House Purchases and Remortgaging: Increased in Q4 2023.
- Expectation: Decrease anticipated in Q1 2024.
- Unsecured lending demand:
- Overall: Slight increase in Q4 2023.
- Expectation: Further increase expected in Q1 2024.
- Corporate lending demand:
- Small Businesses: Unchanged in Q4 2023; slight decrease expected in Q1 2024.
- Medium-Sized Businesses: Slight decrease in Q4 2023; unchanged demand expected in Q1 2024.
- Large Businesses: Decrease in Q4 2023; significant decrease anticipated in Q1 2024.
- Loan pricing:
- Secured Lending Spreads: Narrowed significantly in Q4 2023; further narrowing expected in Q1 2024.
- Unsecured Lending Spreads: Slight narrowing in Q4 2023; expected to remain unchanged in Q1 2024.
- Interest-Free Periods on Credit Cards: Decreased significantly in Q4 2023; expected to decrease further in Q1 2024.
- Default rates:
- Secured Loans to Households: Unchanged in Q4 2023; expected to decrease in Q1 2024.
- Unsecured Lending: Increased in Q4 2023; expected to remain unchanged in Q1 2024.
- Corporate Loans:
- Small Businesses: Increased in Q4 2023; expected to remain unchanged in Q1 2024.
- Medium-Sized Businesses: Slight increase in Q4 2023; expected to increase further in Q1 2024.
- Large Businesses: Unchanged in Q4 2023; expected to remain unchanged in Q1 2024.
