Inflation may be falling but use of credit is increasing

DEFAULT rates on mortgages, credit cards and household loans have recently increased and are expected to rise further in the coming months, according to a Bank of England survey of lenders.

Demand for credit card borrowing increased in recent months, and is expected to increase further by the end of May, the report found.

Lenders reported that overall demand for non-mortgage lending had increased in the past few months and was expected to increase further in the coming months.

Karim Haji, global and UK head of financial services at KPMG, said: “Considering inflation is now falling and is expected to drop to below the Bank of England’s 2% target in the months ahead, rising demand for credit card lending in [the first quarter of 2024] suggests a more positive economic outlook hasn’t fed through to household finances yet.

“Defaults across all unsecured [non-mortgage] lending increasing over the same three-month period indicates many people are still struggling to meet their day-to-day costs. Lenders will need to be vigilant and continue to offer support for borrowers in the interim.”

Lenders reported that mortgage availability to households increased in the three months to the end of February and is expected to increase over the three months to the end of May.

Demand for mortgages for house purchase and remortgaging is also predicted by lenders to increase.

The availability of non-mortgage credit to households was unchanged and was expected to remain broadly the same in the three months to the end of May.

Lenders reported that the length of interest-free periods on credit cards for balance transfers had decreased in the previous few months and was expected to remain unchanged by the end of May.

The length of interest-free periods on new credit cards for purchases had slightly increased in recent months and was expected to be unchanged by the end of May.

Looking at loans to businesses, default rates have also slightly increased for small and medium businesses but were unchanged for larger firms in recent months, the Bank of England’s Credit Conditions Survey found.

Default rates are expected to increase for small and medium-sized businesses in the next few months and be unchanged for larger firms.

Lenders reported that the overall availability of credit to the corporate sector had been unchanged in the past few months. The overall availability of credit to businesses was expected to slightly increase by the end of May.

The Bank of England carries out the survey each quarter as part of its role of maintaining financial stability.

The results are based on banks’ and building societies’ responses to the survey, rather than the views of the central bank.

Lenders were asked to report changes in the three months to the end of February 2024, relative to the period between September and November. They were also asked about expected changes in the three months to the end of May 2024, relative to the period between December and February.

Meanwhile, rent has risen by at least 11.7% across the private rented sector in the past year, figures show.

The Scottish Government released its housing market review yesterday, showing the level of rent increases in the year to September.

The highest increase was seen in shared, one-bedroom homes, where the average rent increased by 15.1% to £490 per month.

Rents in two-bedroom homes increased by 14.3% to £841 per month, while three and four-bedroom homes increased by 13.3% and 13.4%, respectively.

The smallest increase was in non-shared, one-bedroom flats, which rose by 11.7% to £648.

Rent increases varied by geography, with Dumfries and Galloway seeing a jump of just 1.5%, compared to 22.3% in the greater Glasgow area.

The figures come as the provisions of the Scottish Government’s rent cap and eviction ban ended last month.