Lenders say that defaults on secured loans to households rose in the last quarter, while the demand and supply of this type of lending fell, according to the Bank of England. 

The default rate on secured loans to households posted a net balance of 43.3 in the three months to the end of August, up from 30.9 in the previous quarter, in the BoE’s questionnaire of lenders in its latest Credit Conditions Survey. 

It adds that customer demand for secured lending for house purchases in the third quarter slumped to a balance of -54.9, from 52.7 in the previous three months. Banks expect demand to fall further in the final quarter of the year. 

While demand for secured lending for remortgages also tumbled to a balance of -22.8, from 51.3 in the period. 

Lenders also point out that the proportion of household loan applications they approved slid to a balance of -30.2, from 14.9 in the period. 

Knight Frank Finance partner Hina Bhudia says: “Demand for mortgages is set to decline over the coming three months. Transaction activity in the property market is slowing and many borrowers are still rolling off sub-2% deals and are eager to put off refinancing where they are able to do so.

She adds: “Borrowers that do act are generally opting for trackers. For many people, the risk that monthly payments increase in the event of another interest rate hike is worth taking if it gives them the opportunity to see cuts in their monthly outgoings next year.  

“Typical two-year trackers at 75% loan to value are still above 5.50%, while retail bank tracker products sit a little over 1% above the base rate.” 

Sho Sugihara chief executive and co-founder of data firm Fuse points out: “Borrowers are heading into a hugely challenging period as we enter winter and household bills are likely to spike.  

“Our research shows that 32% of lenders are already reporting an increase in borrower defaults over the last 12 months.

“However, the situation seems set to only worsen as a result of interest rates climbing steadily for months and dwindling household savings start to run out. 

“With reliance on credit clearly on the rise, there are potentially millions across the UK who are at real risk of falling into long-term debt and being excluded from mainstream credit options.” 

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