Lenders expect rise in defaults

LENDERS expect to see the rate of loan defaults rise across the board during the autumn, the Bank of England has said.

Borrowers affected will include homeowners and firms to credit card holders.

Its survey of banks and building societies for the second quarter of this year found that default rates among small and large businesses rose but were unchanged for medium-sized companies.

The credit conditions survey found that while default rates for secured loans to households were stable, they fell slightly for unsecured borrowers.

Although the economy has reopened after lockdown, the outlook is uncertain as conditions are volatile.

As a result, lenders believe that default rates on secured and unsecured loans to individuals will rise, as well as for small to medium sized businesses.

The survey also found that banks and building societies opened up the lending taps in order to meet increased demand for credit from individual and businesses.

They believe that the need will continue to grow and that they will have to lend more this quarter as a result.

The ongoing demand for loans has benefited borrowers as lenders have had to offer increasingly competitive rates, with prices falling for mortgages, unsecured loans and large businesses.

Borrowing costs remained the same for medium sized companies but increased for small businesses.

Andrew Montlake, managing director of mortgage broker Coreco, said: “Banks know that there are a lot of struggling borrowers out there but equally have to lend to meet their targets.

“It’s a hugely delicate balancing act of lending while accepting that defaults are likely to nudge up.”

Elsewhere, the Office for National Statistics said the number of jobs available has climbed above pre-pandemic levels as the unemployment rate is falling.

Recruitment giant Hays said that private sector employment is bouncing back sharply, with companies in the Northwest, East and Midlands being particularly active in the jobs market.

It said hiring in accountancy, finance, IT and construction and property had “rebounded sharply”.

‘Banks know that there are a lot of struggling borrowers out there’