The Bank of England (BoE) has warned of rising defaults on household and business loans, with expectations of an increase by the end of November.
In its latest credit conditions survey for the third quarter of this year, it said that the net percentage balance for changes in default rates decreased over the period.
The poll of lenders also found that more households are forecast to have defaulted on mortgages and other loans, including credit cards, in the next few months.
“The prospect of higher interest rates, the end of the furlough scheme, a cut to universal credit and rising inflation could contribute to the potential increase in default rates among consumers,” Victoria Scholar, head of investment at Interactive Investor, said.
The report, which asks banks and building societies about recent trends, further highlighted a rise in secured and unsecured lending to households in the third quarter, with a further increase expected in the next quarter.
Overall demand for unsecured lending from UK consumers increased in the third quarter, across both credit cards and other unsecured lending, and was expected to increase further in the final three months of the year.
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Simon Lister at Investing Reviews said: "There is a potential red flag in the fact that demand for unsecured lending in the form of credit cards and loans increased in the third quarter and that lenders expect it to increase further in the next quarter.
"On the one hand, it could be a sign of confidence, on the other it could be a sign of finances being stretched and people increasingly relying on loans and plastic to stay afloat. The fact that lenders think defaults on unsecured lending will increase in the fourth quarter should be a shot across the bows for both the Bank of England and government."
The survey also found that lenders expect the availability of mortgages and other loans to households to increase by the end of November. Demand for mortgages for new properties is falling, while remortgaging is on the rise.
“We may be reaching the end of a golden age for cheap mortgages. Right now, mortgages have been getting cheaper, and banks are increasingly willing to lend, so there’s never been a better time to consider remortgaging onto a cheaper fixed rate deal if you can. But with the threat of interest rate rises around the corner, you’ll need to be quick,” said Sarah Coles, personal finance analyst at Hargreaves Lansdown.
The survey was conducted between 31 August and 17 September, meaning that the impact from more recent developments were not captured. The BoE carries out the survey as part of its role in maintaining financial stability and the results do not necessarily reflect the views of the Bank.
The 2021 Q4 credit conditions survey will be published on 13 January 2022.
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The data comes amid growing concern that households are facing a squeeze this winter thanks to supply chain disruptions and the ongoing energy crisis.
Wholesale gas prices recently surged more than six-fold, while the price cap on energy bills has risen £139 ($190) to £1,277.
Experts have predicted that it could rise by another almost £400 in April.
According to research firm Cornwall Insight, energy bills could climb by as much as 30% next year if gas and electricity prices continue to rise, and more suppliers go under.
It expects the energy price cap to increase to around £1,660.