Lenders reported an increase in defaults on both mortgages and unsecured loans in the three months to the end of February, the Bank of England’s latest research shows.
The availability of secured credit increased in the three months to the end of February.
The demand for refinancing increased, but the demand for house purchases remained unchanged in the same period
Both measures are expected to increase over the three months to the end of May.
Defaults on secured loans to households rose slightly through the end of February, but are expected to fall slightly in the current quarter, the BoE survey shows.
Karin Haji, head of financial services at KPMG, said: “Rising default rates show that underlying pressures are increasing.
“The impact of the protracted conflict on fuel prices is putting new pressure on household finances, and the full impact of higher costs and mortgage rates is still being felt.
“Lenders must find the right balance between supporting borrowers and managing risk as uncertainty persists.
“The unchanged demand for home loans suggests that high financing costs and affordability constraints have weighed heavily on major financial decisions, while the rise in refinancing indicates that borrowers are continuing to refinance as they move away from fixed rate deals.
“At the same time, stable demand for unsecured loans shows that households are turning to credit to manage their increasing daily expenses.
“While some borrowers are still able to access credit, others are beginning to struggle with repayments, indicating possible early stages of credit deterioration.”
Damien Burke, head of banking consultancy at Broadstone, said: “The latest research points to a cautiously improving outlook for the mortgage market at the start of the year, with lenders expecting demand to pick up in the coming months, particularly for home purchases and refinancing.
“This reflects some degree of pent-up demand as homebuyers waited for lower interest rates and a more secure fiscal landscape.
“However, the timing of the study is important as it was conducted around the beginning of the conflict in the Middle East.
“The longer uncertainty about the broader global economic impact persists, the greater the impact on borrower confidence is likely to be.
“The consequences of the Ukrainian conflict over inflation and mortgage rates are still fresh in the minds of households and even a short-term disruption to supply chains could have a long-term impact on the cost of goods.
“This further increases the need to understand consumers’ individual affordability when assessing credit products and the benefit of ongoing assessment.
“Continued stability in demand for unsecured loans also underlines a more subdued consumer environment, with households remaining cautious about taking on additional debt despite some relief from financial pressures.”