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Alert: UK lenders expect homebuyer revival despite rising defaults and interest rates

UK lenders, rising defaults and interest rates

According to a recent survey by the Bank of England, UK lenders are anticipating a resurgence in homebuyers entering the mortgage market in the upcoming months. Despite facing the challenges posed by high interest rates leading to an increase in defaults on home loans and credit cards, financial institutions revealed in the quarterly Credit Conditions Survey that there was a decline in demand for secured lending in the final quarter of 2023. However, they express optimism, foreseeing a rebound in the first quarter of this year, Bloomberg reports.

The findings of the survey, released on Thursday, (January 18, 2024) contribute to the growing confidence in the housing market. The recent decline in mortgage rates seems to be luring more prospective buyers back into the market, thereby assisting in the stabilization of property prices. This positive sentiment aligns with expectations of a renewed interest in secured lending in the near future.

Nevertheless, the survey also shed light on the impact of the 14 consecutive interest rate hikes implemented by the Bank of England on households. The data revealed a notable increase in default rates on mortgages and unsecured lending, encompassing credit cards, during the fourth quarter of the previous year. Alarmingly, this trend is expected to persist and potentially intensify in the initial months of 2024.

A specific metric, the index measuring losses given default on mortgages, which signifies the estimated amount a lender loses when a borrower defaults, reached its highest point since 2009 by the end of the last year. This suggests that the cumulative effect of interest rate hikes has indeed placed a considerable financial strain on households, leading to elevated risks and losses for lenders in the mortgage market.

In summary, while the UK housing market anticipates a resurgence in homebuyer activity due to the recent decline in mortgage rates, the Bank of England's survey underscores the challenges posed by high interest rates. The increase in defaults on home loans and credit cards, as well as the rising index measuring losses given default, signals a complex landscape where economic factors and market dynamics intersect, impacting both lenders and borrowers alike.


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