Mortgage demand plummets and debt problems mount: Bank of England

Mortgage demand plummeted in the wake of the mini-budget, and is expected to keep falling. Demand for credit cards and loans fell, and is expected to continue. Defaults on credit cards and loans rose in the last three months of 2022, and are expected to keep climbing.

Mortgage defaults were more stable, but are expected to rise between January and March. Lenders made it harder to borrow on both mortgages and unsecured lending – and will continue to do so.

The Bank of England has published details of credit conditions in the fourth quarter of 2022: Credit Conditions Survey – 2022 Q4 | Bank of England

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown said: “Mortgage demand dropped like a stone in the wake of the mini-budget, as rampant rate rises forced buyers to flee the market in droves. And despite rates falling back in recent weeks, the damage has been done – demand isn’t expected to recover in the next few months. Meanwhile red flags have been raised on debt. Defaults on unsecured lending like credit cards and loans were up at the end of 2022, and are expected to keep climbing in the first three months of this year.

Mortgage demand plummeted at the kind of rate we saw when the market was effectively shut at the start of the pandemic. The shock of the mini-budget, and the carnage it caused in the mortgage market, meant buyers faced massive rate hikes that left their plans in tatters.

More recently rates have been dropping, but they remain significantly higher than before the chaos unfolded. Buyers are also reeling from the shock of the rate rises, which put a real dent in their confidence. So although the fall in mortgage demand isn’t expected to be anywhere near so dramatic in the first three months of the year, it’s still expected to be down again. It will take a while for all of this to feed into the figures on house prices, but when it does, we can expect some significant changes.

Struggling with debts

We’re already struggling with debts like credit cards and loans, and the number of defaults rose in the last three months of the year. Unfortunately, as we go through the rest of the winter, there’s a good chance this will get even worse.

Rising rates play their part, but the sheer scale of people’s debts also poses enormous challenges. Those who have been borrowing to make ends meet as prices have risen are running out of options. Already the HL Savings & Resilience Barometer shows that a third of people score poor or very poor for debt resilience. As time goes on, those debts mount, and people struggle to find additional borrowing, they’re going to be increasingly vulnerable. And while debt feels like the answer to our problems in the short term, it creates huge problems of its own.

Mortgage defaults were more stable, in part because people will prioritise their mortgage payments because the consequences of falling behind can be so severe. In addition, the fact that the vast majority of mortgage rates are still fixed means that huge numbers of borrowers were protected in the short term from rampant mortgage rate rises. The problem will come when they need to remortgage, which is one reason why mortgage defaults are expected to rise in the first three months of this year. There will also be those who are currently clinging on by their fingertips, and the fact that inflation is still running in double-digits is making it harder to hang on with each passing month.”