Stephen Perkins of Yellow Brick Mortgages said: “After cutting back where possible and exhausting all available credit options, many households are now at breaking point.”
More lenders than not told the Bank that default rates rose in every quarter of the past year.
Banks are bracing themselves for losses to continue mounting in coming months, even as mortgage rates have begun falling rapidly.
The average 2-year mortgage rate has fallen from 6.34pc three months ago to 5.62pc, figures from Moneyfacts show. Lenders have been cutting rates as markets bet that interest rates will soon be falling.
Four lenders – including NatWest, HSBC and TSB – slashed their mortgage rates on Wednesday amid fierce competition for customers. Demand for home loans remains in the doldrums, according to the Bank’s survey, with lenders reporting significant declines in inquiries over the second half of 2023.
Referencing the default rates, Mr Perkins said: “Rate reductions on mortgages will help some but are coming too late for many. These figures will look even worse over the coming months.”
Families struggling with the cost of living were also defaulting on credit card bills in the run-up to Christmas, with the default rate jumping to its highest since the start of the year.
Lenders are predicting an even steeper increase in the first three months of 2024.
One bright spot is that homeowners and first-time buyers may now find it slightly easier to get approved for a mortgage. Lenders said availability of loans to families had improved for the first time since the start of 2023.