Mortgage defaults and missed payments on credit cards and loans both saw significant surges at the end of the year, new analysis by the Bank of England (BoE) has shown.

According to the BoE’s latest Credit Conditions Survey, which quizzed bank and building society lenders about changes they had observed in Q4, mortgage defaults and missed payments are also expected to keep rising.

Missed credit card and loan payments, as a percentage of balances, are higher than they have been for at least five years. Mortgage defaults were worse in the second quarter of 2023, although other than that the BoE’s findings suggest they are significantly higher than they have been for at least five years.

Demand for unsecured borrowing fell in the last three months of the year while credit card demand is expected to rise in early 2024.

Head of personal finance at Hargreaves Lansdown, Sarah Coles, commented: “There was a massive surge in missed debt repayments at the end of last year, as a huge number of those whose finances had been on a knife edge, finally tipped over into a debt disaster.

“Mortgage defaults and missed payments on credit cards and loans both surged. The proportion of balances behind on payments hasn’t been this bad for unsecured borrowing for at least five years – and the only time mortgage lending was worse was in the middle of last year.”

Coles also warned the level of mortgage arrears and the fact that credit cards are more likely to be held by average earners indicates that middle earners, on top of lower earners, are also facing “horrible debt costs”.

“There’s a real risk their income isn’t keeping up with their expenses, and they’re building problems for the future,” she continued. “The BoE figures show that banks expect credit card borrowing to keep rising during the first three months of this year.”

For mortgages, the BoE survey also indicated that demand fell in the final three months of 2023, and this is expected to now pick up in the opening quarter of 2024.

“The one glimmer of hope in these figures is a slight pick-up in demand for mortgages,” Coles added. “It seems that falling mortgage rates have prompted some buyers to get off the fence and commit to buying a home.

“The level of demand is so low that it’s going to take an awful lot before sellers are back in business, but it’s a whiff of positivity in a market that has stunk a little for some.”

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