BOE Says Banks Reported Unexpected Mortgage Default Increase
Banks reported an unexpected increase in mortgage defaults in the first quarter and are concerned about the impact of a potential move to raise interest rates, according to a Bank of England survey.
A net 11.5 percent of respondents to the credit conditions survey said the default rate on secured loans to households rose, the first reading above zero in seven quarters, the report released in London today showed. A gauge for the second quarter was at 14.3, indicating lenders expect an acceleration in the default rate. The index was at minus 4.5 in the fourth quarter.
“Lenders expressed concerns over the potential impact of increases in bank rate on default rates,” the Bank of England said. “Some lenders commented that they expected falling house prices to exert upward pressure on losses given default in the coming quarter.”
The Bank of England is facing an inflation rate of 4.4 percent, more than twice its target, and investors are betting on an increase in the benchmark interest rate by the middle of the year. Hometrack Ltd. reported today that house prices fell for a ninth month in March as growth in the supply of homes for sale outpaced demand.
The BOE report also showed that demand for mortgages in the first quarter “had fallen markedly,” while the availability of secured loans was “broadly unchanged.” The measure of demand for mortgages in the quarter was at minus 35.6 compared with minus 41.5 in the fourth quarter.
‘Tighter Conditions’
“Some lenders reported that slightly tighter conditions in wholesale funding markets and the outlook for house-price inflation had acted to constrain availability,” the Bank of England said. “But a desire to increase market share had contributed positively to availability.”
Data from the central bank this week showed mortgage approvals rose to 46,967 in February, the highest level since November. Still, that’s about half the average level recorded over the last decade. The Bank of England kept its benchmark interest rate at a record low of 0.5 percent this month. It’s been at that level since March 2009.
Signs of a faltering economic recovery and the government’s budget cuts are undermining consumer confidence and deterring potential homebuyers. While Nationwide Building Society reported today that house prices based on its measure rose for a second month in March, it said this is “unlikely to mark the beginning of a strong upturn in prices.”
Company Loans
The pound rose against the dollar today and traded at $1.6122 as of 9:36 a.m. in London, up 0.3 percent from yesterday.
For companies, availability of credit was reported to have “increased a little” in the current quarter, according to the Bank of England survey. Demand from large companies rose, while demand from small businesses “fell sharply.” The measure of credit availability to companies rose to 6.9 percent in the first quarter from 3.2 percent in the previous three months.
The BOE survey was taken among U.K. lenders between Feb. 11 and March 8.
To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
Rate this Page