Credit card defaults have increased across the UK, with banks and building societies expecting more people to fall behind on repayments in the coming months. The latest Bank of England Credit Conditions Survey found that credit card default rates increased during the three months to the end of August.
Lenders also expect defaults to rise further during the three months to the end of November, raising concerns about the financial pressure facing households as winter approaches.
Charity reports rising demand
Debt charity StepChange said people were struggling to keep up with repayments alongside essential household bills, with demand for its services already higher than expected this year.
Adam Butler, public policy manager at StepChange, said: “Defaults on unsecured credit are rising as people struggle to make their regular repayments alongside essential bills.
“This worrying trend reflects the evidence across our research and client data that households across Britain are feeling the strain of successive waves of inflation.”
He warned that further increases in energy bills and wider living costs could leave more people needing help with their debts.
Mr Butler added: “With further price shocks to come in the winter with energy price rises, interest rates trending upwards, and wider consumer prices continuing to rise above the Bank (of England)’s target, we expect this to feed through into our advice service with continuing increased demand for support, with the charity already supporting 20 per cent more clients than expected this year.”
Mortgage defaults fall slightly
While lenders reported an increase in credit card defaults, the Bank of England survey found that mortgage default rates had decreased slightly during the three months to August.
Banks and building societies expect mortgage defaults to remain unchanged during the three months to the end of November. Default rates on loans to businesses were also unchanged in the latest quarter and are expected to remain stable over the coming months.
Karim Haji, global and UK head of financial services at KPMG, said the findings suggested some households were increasingly relying on credit while struggling to manage existing borrowing.
He said: “That divergence is an important indicator of where financial pressure is most acute.
“A dip in mortgage defaults offers some reassurance that most borrowers are continuing to absorb higher housing costs, but rising unsecured defaults underline the financial strain still facing more vulnerable households.”
Mr Haji warned that the final three months of the year could bring additional pressure as higher energy bills and inflation coincide with increased spending ahead of Christmas. He said higher borrowing costs could also make managing debts more difficult for consumers.
Mortgage availability expected to improve
The Bank of England survey also examined lenders' expectations for mortgage availability and demand.
Banks and building societies reported that mortgage availability decreased during the three months to the end of August, but they expect a slight improvement during the three months to November. Demand for mortgages to buy a home also fell in the latest quarter, although lenders anticipate a small increase in the months ahead. Remortgaging demand followed a similar pattern, declining during the three months to August but expected to increase during the following quarter.
Nathan Emerson, chief executive of property professionals' body Propertymark, said improved access to finance could help restore confidence in the housing market.
He said: “While the year has proved challenging for many consumers from an affordability perspective, improved access to finance could provide an important catalyst for greater confidence across the housing sector as we approach the end of the year and head into 2027.”
The Bank of England carries out its Credit Conditions Survey every quarter as part of its work to monitor financial stability. The latest survey was conducted between August 17 and September 4, with lenders asked about changes during the three months to August and their expectations for the three months to November. The Bank said the findings would not capture the impact of developments occurring after the survey period.
