Customer Defaults To Rise, Banks Say

A new survey of some of England’s biggest banks shows that they expect a rise in customers defaulting on their credit card and loan payments, following the concerns over the increasing cost of living.

The Bank of England has carried out its quarterly credit conditions survey of the larger banks and credit card providers, with the results showing that lenders expect an increase in customer borrowing and in the potential for customers to miss payments that they can’t afford.

However, the banks have said that they expect to be able to weather the defaults thanks to the improved financial results over the last year, and they aren’t expecting it to cause serious concerns to the banking industry.

Yet customers, particularly in the lowest income households, will bear the brunt of the issues as they build up debt problems.

Cost of living emergency

The Bank of England has released this information at a time when it is expected to increase the interest rate again. Inflation is soaring, with a recorded 7% in March 2022, the highest inflation rate in 30 years. Economists have also reported that the cost of living is likely to see an increase of above 9% in April, which would be the highest increase since 1982.

At the same time, it’s been shown that credit card borrowing increased to £59.5 billion in February, an increase of £1.5 billion and the highest level since records were first kept in 1993, showing that consumers are being forced to keep up with inflation and cost of living by turning to expensive forms of borrowing.

It’s expected that restrictions on lending will be tightened as the cost of living increases take effect, with consumers more likely to default.

Despite all of this, spending is still increasing, although economists are expecting spending to drop off as the year progresses and people aren’t able to continue their spending habits, which may impact the post-COVID recovery of the economy.

Significant portions of the UK population are falling into financial difficulty, with families at the lower end of the income scale being hardest hit.

The pressures of the cost of living crisis are pushing up demand for credit, especially in the unsecured lending and credit card spaces, while the same inflationary pressures, along with rising interest rates, are quelling demand for discretionary borrowing,

Paul Heywood, chief data and analytics officer at Equifax UK