Mortgage Defaults Show First Improvement in Three Years
UK mortgage loan defaults have declined for the first time in three years during the third quarter, according to a Bank of England survey that suggests financial pressure on homeowners is easing. Default rates on household secured loans reportedly dropped to minus 8.1 in the third quarter, down from 0.8 in the previous three months, according to the quarterly survey of banks and building societies.
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Significant Improvement From Recent Peak
The report states this figure marks the first fall since the end of 2022 and stands well below the recent peak of 43.3 registered in the third quarter of 2023. The score is calculated by a balance of banks reporting rises and falls in mortgage defaults, with the survey conducted over the first 19 days of September. Analysts suggest this improvement indicates “the drag from high interest rates is fading,” according to Rob Wood, economist at Pantheon Macroeconomics.
Economic Implications and Expert Analysis
Sources indicate that falling mortgage distress reduces the risk of drops in house prices and suggests households can pare back seemingly elevated saving rates. The interest rate had risen from a record low of 0.1% in 2020 and 2021 to a 15-year high of 5.25% in August 2023, remaining at that level until mid-2024 when it reportedly started to decline. Wood added that the improvement in default rates “bodes well for growth” in the broader economy.
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Future Outlook and Lender Expectations
The survey reportedly showed lenders expecting a sharp decline in defaults in the next three months, with a score of minus 10.3, said to be the lowest since the fourth quarter of 2019, before the COVID-19 pandemic. This positive trend comes despite last year’s mortgage arrears rising to the highest rate since 2016, according to separate Bank of England data published last month. The availability of secured credit to households reportedly increased to a score of 36.9 in the third quarter, the highest since mid-2021, with a strengthened outlook for the next quarter.
Potential Challenges Ahead
However, analysts suggest expected tax rises in the November Budget could potentially “rock household confidence,” according to Richard Pinch, senior director at independent financial services consultancy Broadstone. Chancellor Rachel Reeves will reportedly need to fix a hole in public finances estimated between £20bn and £30bn. Despite these concerns, demand for corporate lending is expected to increase in the next three months across small, medium and larger companies, the survey indicated.
Broader Economic Context
The improvement in UK mortgage defaults comes amid global economic shifts, including developments such as Indian refiners reducing Russian oil imports and companies like Zepto reaching $7 billion valuation in rapid commerce expansion. Meanwhile, financial institutions including Synchrony Financial reporting Q3 profit surges demonstrate varied performance across the financial sector.
Monetary Policy Expectations
The Bank of England is expected to keep interest rates on hold at 4% for the rest of the year, according to reports, but cut borrowing costs by a quarter of a percentage point twice next year. Borrowing costs have reportedly been falling since the summer of 2024, easing the strain on household finances and contributing to the improved default situation.
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