Bank of England Reports Mortgage Defaults on the Rise

The Bank of England warned this week that the number of homeowners defaulting on their mortgage payments has made an unexpected increase.  Between January and March, lenders reported a surge in customers being unable to find the money to meet their monthly loan repayments.  They told the Bank of England’s researchers that they fully expect this number to rise further over the next few months at least.

This rise is the first since the second quarter of 2009 and will inevitably increase again should interest rates increase; something which could be on the cards as early as May 2011.  Nationwide, Britain’s biggest building society, announced their own fears yesterday about ‘the squeeze on borrowers’, a fear that is shared by many of its competitors.

The Bank of England surveyed a number of lenders with 11% reporting that mortgage defaults rose significantly during the first quarter of 2011.  Many lenders had expected this number to remain flat given that the Bank’s base rate is still at a record low of 0.5%.

Research also shows there to be a significant drop in demand for mortgage products and a further drop is expected over the next 3 months. A poll conducted by Reuters found that the majority of lenders expect the Bank of England to hold off from raising interest rates until July 2011, but 45% also expect an increase to be announced and in effect before June.  As inflation has risen, the pressure has been rising for an increase on the cost of borrowing.

As if that wasn’t enough, further data released this week has shown consumer confidence has failed to bounce back since its biggest drop since 1992.  Consumers are no longer as willing to splash out on big ticket items either because they can no longer afford them or because they are choosing instead to save their money.  Figures released by GfK NOP Social Research also showed that the hopes for a recovering economy over the next year increased two points since last month, but were still down 29 points since last year.