Biggest increase in mortgage defaults since 2009

Lenders have reported the UK’s biggest increase in mortgage defaults since 2009 – and they expect them to rise further in the coming months.

The findings come amid growing concern over the cost of mortgages and warnings that nearly a million homeowners can expect to see their monthly repayments jump by £500 or more by the end of 2026.

The Bank of England‘s Credit Conditions Survey, published on Thursday, found mortgage defaults in the three months to the end of May leapt to 30.9 on its index, up from 14 in the first quarter of 2023.

The figure is the highest in the survey since mid-2009, when the same indicator topped 60.

The survey, which was carried out between 30 May and 16 June, asked lenders to report changes in the second quarter of 2023, compared to the previous three months, with a score then assigned based on their response and market share.

The research also found that firms expect demand for mortgages to fall sharply in the third quarter, while the availability of mortgages and non-mortgage credit to households is also expected to drop.

However lenders think that the availability of credit to businesses will be unchanged over the same period.

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“Lenders reported that losses and default rates on secured loans to households increased in Q2, and were expected to increase in Q3,” the Bank said.

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Mortgage rates have risen sharply in recent months amid predictions that interest rates will stay higher for longer as the Bank of England tries to bring down inflation.

The average two-year, fixed-rate mortgage for homeowners across all deposit sizes is now 6.75%, while the average five-year fix on offer has a rate of 6.27%, according to figures on Thursday by Moneyfactscompare.

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Myron Jobson, a senior personal finance analyst at interactive investor, said the latest survey “lays bare the devastating impact the mortgage crisis and stubbornly high inflation is having on personal finances”.

He said rising mortgage rates have pushed tight household budgets “to breaking point” and that it was “therefore unsurprising that lenders are expected to tighten their belts and reduce the supply of home loans”.

Riz Malik, director of Southend-on-Sea-based R3 Mortgages, added: “It is highly troubling to see that the rates of default on secured loans are escalating and are anticipated to rise further.”

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