The Bank of England has warned of a spike in mortgage defaults as a winter jobs crisis looms.
Default rates on loans to households and businesses are expected to rise in the fourth quarter, according to the Bank’s credit conditions survey of banks and building societies that was carried out last month.
It comes after Andrew Bailey, the Governor of the Bank of England, this week said the Covid-19 pandemic risked causing long-term scars for the economy.
About 1.5m people are officially unemployed, according to Office for National Statistics data, although the true scale of the crisis is likely to be far worse after being masked by the taxpayer-funded furlough scheme.
The Organisation for Economic Co-operation and Development (OECD) likewise predicts that a resurgence in virus cases and a disorderly Brexit – leading to a "prolonged period of disruption to activity and jobs" – will push unemployment to 5.3pc this year.
Lenders have introduced various temporary measures to help soften the financial blow of the coronavirus crisis for customers. However, there are also signs that lenders are becoming warier about offering riskier loans, with the number of low-deposit mortgages on the market having fallen dramatically since the lockdown started.
Andrew Montlake of mortgage broker Coreco said first-time buyers with small deposits were aware they had little chance of being approved - a situation that would be worsened by the prospect of a circuit-break lockdown.
“It’s no real surprise that the banks are pulling down the shutters for those with smaller deposits,” he said. “What we need to avoid, however, is banks catastrophising and pulling products for more robust borrowers at lower loan-to-values.”
There was a slight rise in demand for secured loans for house purchases in the third quarter, which Mr Montlake said was to be expected given the economy was in lockdown for much of the second quarter.
The survey also showed that lenders anticipate they will tighten their credit scoring criteria in the months ahead.
Mark Harris of mortgage broker SPF Private Clients said: “Concerns about the impact of the pandemic on earnings and what will happen to property prices, particularly for those borrowing at high loan-to-values, is behind this growing caution.
“Mortgage pricing is on the rise, a trend expected to continue over the course of the rest of the year.”