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Rise in loan defaults expected as the cost-of-living crisis begins to bite

  • Bank of England survey says loan defaults are likely as consumer pockets squeezed
  • Rising cost of living could push some to miss loan payments, says survey of lenders
  • Meanwhile, retail sector could get boost this Easter from increased footfall

Time 7:54 am, April 15, 2022

Finance companies are expecting an increase in loan defaults as the cost of living hits consumers.

The Bank of England’s latest credit conditions survey says lenders are predicting a jump in defaults on mortgages, unsecured lending and business loans.

The warning comes as banks and finance companies said they saw a decrease in defaults for both secured and unsecured loans in the latest quarter to February.

Finance providers also told the central bank that they plan to rein in mortgage lending by the greatest amount since the start of the pandemic.

Soaring interest rates have resulted in lenders trimming back their offer of mortgages and tightening some eligibility criteria.

The base rate is up to 0.75 per cent and expected to rise again by 0.25 per cent next month.

‘Lenders expected the availability of secured credit to decrease over the next three months to May 2022,’ the report said.

However, lenders said that the availability of mortgages and other secured credit remained unchanged over the previous quarter.

The Bank of England said lenders showed that demand for unsecured lending increased in the three months to February and is expected to rise further in the current quarter.

Finance firms told the central bank this was driven by increased demand for credit cards and loans.

‘With inflation gathering momentum, and eye-watering price rises for many of the essentials, it has forced more of us to borrow to make ends meet,’ said Sarah Coles, senior personal finance analyst at Hargreaves Lansdown.

Meanwhile, car dealers could be in for a boost this weekend as the retail industry expects warm weather this Easter to bring shoppers out.

Experts have said shopper footfall is predicted to rise by 6.2 per cent over the break compared with the weekend before, and by 13.3 per cent on Saturday.

This year will be the first Easter without any social restrictions since 2019, combined with a mini-heatwave that will provide a much-needed boost to the sector.

High streets are expected to see the greatest uplift, at 17 per cent on Saturday, according to analysis by research firm Springboard.

Additional reporting: PA Media

James Baggott's avatar

James is the founder and editor-in-chief of Car Dealer Magazine, and CEO of parent company Baize Group. James has been a motoring journalist for more than 20 years writing about cars and the car industry.

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