Rise in defaults underlines daily struggle to keep on top of rising prices

Myron Jobson, senior personal finance analyst at interactive investor, comments on the BoE Credit Conditions Survey.

The Bank of England has today published its latest quarterly survey of bank and building society lenders covering three months to end of February 2023.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The uptick in defaults in both secured and unsecured loans underlines the daily struggle for many households to keep on top of rising prices.

“The past couple of years have been painfully difficult for Britons, with rising prices robbing us all of purchasing power. The sheer force of the cost-of-living storm has shattered finely crafted budgets in its wake. While the cost of living is forecast to fall significantly by the end of the year, significant pressure remains on the ability of households to meet their debts.

“With the cost of housing, food, broadband and other household utilities on the up, and with energy bills remaining elevated, people are already struggling to keep their financial plates spinning. Adding interest and repayments to the ever-growing mountain of monthly costs could prove to be one plate too many for a large number of Britons. The banks predict that more and more people who have relied on the plastic and other forms of debt to make ends meet amid the cost-of-living crisis will reach financial breaking point in the coming months.

“It remains important to pay extra attention to your financial well-being and consider what protective steps you can take now to avoid money worries later. If you don’t have a budget, now is a good time to start one – categorising outgoings and income as well as getting an idea of you personalised inflation number and how a prolonged high inflation environment might impact you. If you are struggling to stay financial afloat, make sure you’re getting all the support you’re entitled to.

“If you are struggling with debt, it is worth consulting a debt advice charity such as StepChange or Turn2Us. They will go through all your options.”

Mortgages

“Soaring interest rates and, in turn, mortgage rates in tandem with red-hot inflation has forced many would-be buyers on to the sidelines until they can make the numbers work. Consumer confidence took a hit following the turmoil in the mortgage marketplace that ensued after the ill-fated mini-Budget in September. The reverberations from the fiscal event have waned, and mortgage availability has improved - but rates have stabilised at higher levels and offers little reprieve from the affordability squeeze.

“But the winter season is typically a slow period for the property markets, and lenders appear confident that there will be a significant increase in demand for home loans over the next three months, with the cost-of-living squeeze on budget forecast to ease. The spring/summer season, typically a busy period for the UK's property market, will provide the real acid test for the robustness of the property market amid the cost-of-living storm.”