Karim Haji, Global and UK Head of Financial Services at KPMG, comments on today’s Money and Credit data from the Bank of England (May):
“A slight upward trend in consumer borrowing should be monitored closely by lenders. Even if the Bank of England opts to cut the base rate at the next meeting, a likely 25 basis point cut would still leave the base rate above its long-run level.
“With this in mind, more borrowing at higher rates, at a time when the cost of living is still high, should be cause for additional vigilance amongst lenders.
“Whilst some may be learning to live with a higher cost of living and less disposable income, default rates for mortgages have recently ticked upwards – albeit are still at lower levels than they were pre-pandemic – and unsecured loan default rates remain elevated.
“Many homeowners, particularly those on five or ten-year fixed rates who took mortgages out just before or during the pandemic, will be coming up to refinancing time and will be doing so before there’s any meaningful drop in interest rates. The impact on defaults will need to be closely monitored.
“A considered approach to new credit applications is still needed, and lenders should continue to be vigilant as we move towards borrowing rates potentially dropping later this year.”
