UK Banks Concerned Over Mortgage Defaults

UK banks and building societies are concerned with the financial standing of the mortgage borrowers.

Their fears come in spite of the fact that the latest report by the Bank of England revealed that the default rate on secured loans remained unchanged and the default rate on unsecured loans fell.

However, it should be noted that the number of defaults on credit card payments increased in Q2 2011.

Probably, the concerns of UK banks and building societies are due to the increased demand for mortgages in April and May. On the supply side, mortgage lending was weak in the three months to June. UK economists do not expect the situation to change in the coming months. As such, Vicky Redwood of Capital Economics, noted that "there was little in the Bank of England's latest credit conditions survey to suggest that bank lending is set to pick up any time soon."

Another reason for the banks to worry is the statement by Sir Mervyn King, governor of the BoE, in which he claimed that "the number of potentially bad loans sitting on mortgage books may not have been fully taken into account – and could mean that reports on the UK banking industry’s health are misleading."