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Mortgages harder to get as lenders factor in cost of living rise

·2-min read
Britons could struggle to get a mortgage or other forms of credit over the summer as cost of living surges. Photo: Nathan Stirk/Getty
Britons could struggle to get a mortgage or other forms of credit over the summer as cost of living surges. Photo: Nathan Stirk/Getty

The cost of living is about to get worse for many households as UK lenders expect to cut the number of available mortgages and unsecured consumer loans.

Britons could struggle to get a mortgage or other forms of credit over the summer as default rates on loans are expected to increase.

New analysis from the Bank of England (BoE) shows major lenders expect loan spreads over Bank rate for mortgages and unsecured credit to widen in the three months to August.

Lenders also anticipate default rates for unsecured credit to rise after a small increase in the previous three months as borrowers struggle to repay their debts as interest rates rise.

Read more: UK's 'toxic' mix of low growth and high inequality leaving families £8,800 poorer

According to the quarterly survey published on Thursday, unsecured credit available to households, including credit cards, is anticipated to drop following a rise in the first quarter.

Major lenders were surveyed between 30 May and 17 June.

As households budgets are squeezed, lenders reported that overall demand for unsecured lending increased during the period, and is expected to be unchanged in Q3.

Demand for credit card lending also rose and is forecast to push higher next quarter, with demand for other unsecured lending was also up.

Chart: Bank of England
Chart: Bank of England

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: "Demand for debt flourished this spring, as price rises ran rampant. The banks expect us to keep reaching for our credit cards to plug the growing gaps in our finances during the summer too. Unfortunately it means people risk building up even bigger problems further down the track, which is one reason why the banks are toughening up.

"This was the period when the energy price cap hiked kicked in, and we felt price rises most keenly. The HL Savings and Resilience Barometer found that as a result of price rises across the board, real disposable income fell by 3%, so 41% of households were forced either to cut their costs, dip into savings or borrow money. This data shows that borrowing has been a key part of this picture.

"So far, lenders have been keen to make this borrowing available, but over the summer, they’re planning to tighten the purse strings. With inflation at this level, they’re mindful that there’s a rising risk that people will struggle to stay on top of their debts."

Watch: How to save money on a low income

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