The availability of secured credit to UK households decreased in the three months to the end of November 2022, new analysis published by the Bank of England (BoE) has indicated.

Lenders are also expecting secured credit availability to decrease further over the next three months, to the of end of February 2023, while lenders also reported similar trends for the availability of unsecured credit.

The BoE’s latest quarterly Credit Conditions Survey asked lender to report changes in the three months to the of November 2022 (Q4), relative to the period between June and August (Q3), and expected changes in the three months to the end of February 2023 (Q1), relative to the period between September and November.

In terms of demand, the BoE research revealed that lenders have reported a fall in secured lending in Q4, with demand expected to also decrease further in Q1. Demand for secured lending for remortgaging also decreased in Q4, although lenders are anticipating this to increase slightly in Q1.

Senior personal finance analyst at Hargreaves Lansdown, Sarah Coles, said: “Mortgage demand dropped like a stone in the wake of the mini-budget, as rampant rate rises forced buyers to flee the market in droves. And despite rates falling back in recent weeks, the damage has been done – demand isn’t expected to recover in the next few months.

“Meanwhile red flags have been raised on debt. Defaults on unsecured lending like credit cards and loans were up at the end of 2022, and are expected to keep climbing in the first three months of this year.

“Mortgage demand plummeted at the kind of rate we saw when the market was effectively shut at the start of the pandemic. The shock of the mini-budget, and the carnage it caused in the mortgage market, meant buyers faced massive rate hikes that left their plans in tatters.”

Respondents to the BoE’s survey reported that demand for unsecured lending fell in Q4 and is expected to fall slightly further in Q1. Within this, demand for both credit card lending and other unsecured lending decreased in Q4, and lenders expect demand for both to fall further in Q1.

Furthermore, lenders felt that overall unsecured lending spreads narrowed in Q4, and were expected to be unchanged in Q1. They also reported that the length of interest-free periods on credit cards for both balance transfers and purchases decreased in Q4, and were expected to decrease further in Q1.

“We’re already struggling with debts like credit cards and loans, and the number of defaults rose in the last three months of the year,” Coles added. “Unfortunately, as we go through the rest of the winter, there’s a good chance this will get even worse.

“As time goes on, those debts mount, and people struggle to find additional borrowing, they’re going to be increasingly vulnerable. And while debt feels like the answer to our problems in the short-term, it creates huge problems of its own.”

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