Lenders are accounting for a 22 per cent increase in expected credit loss provision as mortgage defaults spike, analysis from Fuse has found.
The analysis, which looked at the most recent financial statements of 10 of the UK’s largest mortgage lenders, found lenders are accounting for ECL exceeding £760mn this year.
This is an increase on the £625mn in the previous year.
The research revealed that seven of the 10 lenders reported an increase of more than 10 per cent in their ECL provision and just one reported a reduction in ECL allowance.
Fuse CEO and co-founder, Sho Sugihara, said: “With homeowners under relentless pressure to meet ever-rising mortgage costs, the prospect of increased defaults appears inevitable.
“In order to protect mortgage holders from defaults, it’s vital that lenders introduce more effective approaches to assess affordability and utilise the full range of data insights at their disposal.”
Sugihara said this step is necessary to ensure lenders can step in at an earlier stage to offer support to homeowners who may be struggling.
He added: “In this current climate, the much publicised 99 per cent mortgage for first-time buyers being left out of the chancellor’s recent budget is a welcome move".
Many lenders had previously raised concerns that this scheme would raise the default rate further if introduced at a point where potential homeowners’ finances were “already stretched paper thin”.
Fuse also pointed out that research by the Financial Conduct Authority showed around 1.5mn fixed-rate mortgage deals will end this year.
With millions of homeowners coming off generous long-term fixed deals and facing much higher fixed rate options or variable rates, monthly costs have been rising rapidly, with many using their savings to meet repayments.
These findings follow recent research from Fuse which revealed total ECL provision exceeded £19bn in the most recent financial reports from 20 of the UK’s largest lenders,
This represented an increase of £788mn in the £18.3bn allowance 12 months previously.
tom.dunstan@ft.com
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