Credit card defaults increased in the three months to August, according to the Bank of England, offering a fresh indication that financial pressure is becoming more acute for households even as mortgage and corporate defaults remain comparatively contained.
Banks and building societies expect defaults on credit card lending to rise further in the three months to the end of November, suggesting that the strain on household finances could intensify as higher energy bills, inflation and borrowing costs collide with the seasonal increase in consumer spending.
The divergence between unsecured and secured lending is significant. Lenders reported a slight decline in mortgage defaults during the latest quarter and expect them to remain broadly unchanged over the coming three months. Defaults on loans to businesses were also unchanged and are expected to remain stable.
The figures come from the Bank of England’s quarterly Credit Conditions Survey, which monitors developments in lending and borrowing as part of the central bank’s financial stability responsibilities.
Adam Butler, public policy manager at debt help charity StepChange, said: “Defaults on unsecured credit are rising as people struggle to make their regular repayments alongside essential bills.
“This worrying trend reflects the evidence across our research and client data that households across Britain are feeling the strain of successive waves of inflation.
“With further price shocks to come in the winter with energy price rises, interest rates trending upwards, and wider consumer prices continuing to rise above the Bank (of England)’s target, we expect this to feed through into our advice service with continuing increased demand for support, with the charity already supporting 20% more clients than expected this year.”
Karim Haji, global and UK head of financial services at KPMG, said the figures “suggest that some households are continuing to lean on credit while simultaneously finding it harder to manage existing debts”.
He said: “That divergence is an important indicator of where financial pressure is most acute.
“A dip in mortgage defaults offers some reassurance that most borrowers are continuing to absorb higher housing costs, but rising unsecured defaults underline the financial strain still facing more vulnerable households.
“Looking ahead, (the fourth quarter of the year) could bring renewed financial pressure on households, with higher energy bills and inflation coinciding with the seasonal increase in spending in the run-up to Christmas.
“Higher borrowing costs will also add another headwind for consumers. Lenders need to be thinking now about how these pressures could affect households later in the year.”
The survey was conducted between August 17 and September 4, meaning it does not capture the impact of developments after that period. Lenders were asked to compare conditions in the three months to the end of August with the previous quarter, covering March to May, and to provide expectations for the three months to the end of November.
The picture for the housing market was more mixed.
Mortgage availability fell during the three months to August, although lenders expect it to increase slightly in the quarter ahead. Demand for mortgages for house purchases also declined, but banks anticipate a modest recovery by the end of November.
Demand for remortgaging followed a similar pattern, falling during the latest quarter but expected to strengthen in the months ahead.
Nathan Emerson, chief executive of Propertymark, said: “It is encouraging to see growing confidence around the potential demand for secured lending for house purchases and remortgaging in the months ahead.
“While the year has proved challenging for many consumers from an affordability perspective, improved access to finance could provide an important catalyst for greater confidence across the housing sector as we approach the end of the year and head into 2027.
“Maintaining access to affordable lending will be important in helping the market build momentum and providing greater certainty for consumers.”
The latest data nevertheless points to an uneven distribution of financial stress. While homeowners and businesses have so far avoided a broad deterioration in defaults, households relying on unsecured borrowing are showing clearer signs of strain.
That distinction could become increasingly important over the winter. Rising household costs and higher borrowing expenses threaten to put further pressure on consumers at precisely the point when spending traditionally increases.
For lenders, the immediate concern is not necessarily a broad-based deterioration in credit quality, but whether the rise in unsecured defaults becomes the first visible sign of a wider weakening in household balance sheets.
The Bank of England’s next assessment will therefore be closely watched for evidence of whether the pressure remains concentrated among vulnerable borrowers or begins to spread more widely through the UK economy.
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