The numbers of people defaulting on loans grew in the run up to Christmas and is expected to rise again, according to a survey of banks and building societies conducted by the Bank of England.

Lenders reported more people were unable to meet mortgage and credit card payments in the final three months of last year as default rates rose.

As a result, banks and building societies were losing more money on mortgages. Both defaults and losses are expected to increase this year, according to the Bank’s credit conditions survey.

At the same time, demand for new mortgages from first-time buyers and re-mortgaging fell.

Credit card lending also dropped but is expected to be on the up with defaults also expected to increase in early 2024.

The problem was not confined just to mortgages. Defaults for non-mortgage loans, such as car or home loans, rose too and are also expected to rise even further.

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Borrowing has been made significantly more expensive as the base interest rate reached 5.25% after 14 consecutive hikes by the Bank of England.

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Interest rates were brought up in an attempt to cool inflation which spiked following energy price shocks after Russia’s invasion of Ukraine and the supply chain crisis exacerbated by COVID-19 lockdowns.

Loans to businesses were less impacted, the survey said, as there was no increase in the rate of small and medium-sized firms (SMEs) or large businesses defaulting. However, a rise is forecast for SMEs.

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Every three months banks are invited to respond to the survey of their credit conditions and expectations for the coming quarter.

The Bank surveys lenders every quarter and the latest survey was carried out between 20 November and 8 December 2023.

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