Bank report is bad news for borrowers

People will find it tougher to get loans in the coming months as default rates are poised to increase, a survey of lenders suggests.

The Bank of England' s credit conditions survey of banks and building societies, carried out in September, found lenders anticipate they will tighten their credit scoring criteria in the months ahead.

Many temporary measures have been put in place by lenders to help cushion the financial shock of the coronavirus crisis for customers but there have also been signs that lenders are becoming warier about offering riskier loans, with the number of low deposit mortgages on the market having reduced dramatically since the lockdown started.

The report said that while lenders expect mortgage availability to remain unchanged over the next three months, credit scoring criteria had tightened and is expected to tighten further – meaning home buyers will have higher hurdles to clear to get a mortgage.

The report also found credit scoring criteria for non-mortgage lending, such as credit cards and personal loans, also tightened and a further squeeze is expected.

This could come at a time of rising demand, as the report said lenders believe demand for both credit cards and other non-mortgage lending will increase over the next quarter.

The report also said lenders think mortgage default rates will increase in the fourth quarter of the year as will defaults on non-mortgage lending to households.

The report also says defaults are also expected to increase for businesses of all sizes in the next few months.