Lenders are bracing for a substantial increase in debt defaults, with expectations pointing to a staggering rise of nearly £788 million, surpassing the £19 billion mark this year, as reported by transaction analytics group Fuse.

An in-depth analysis of the most recent Financial statements from 20 of the UK’s largest lenders sheds light on their projections, revealing a collective anticipation of losses exceeding £19 billion, compared to the previous year’s Expected Credit Loss (ECL) of £18.3 billion.

Half of the lenders surveyed reported an anticipated increase in losses of at least 10%, with three institutions—Atom Bank, Newcastle Building Society, and Skipton Building Society—forecasting spikes of over 50%. However, a minority of lenders, including HSBC, Lloyds, and Nationwide, are among the few expecting a reduction in credit losses compared to the previous year.

Fuse attributes this surge in expected losses to persistent financial strains on households, coupled with diminishing savings reserves and heightened reliance on credit. Consequently, lenders foresee a rise in consumer defaults over the coming months.

Commenting on the projections, Sho Sugihara, CEO and Co-Founder of Fuse, emphasized the urgency for more tailored support solutions to assist struggling borrowers proactively.

“With banks bracing for a surge in consumer defaults, there’s an imperative for more personalized support solutions to aid distressed borrowers,” Sugihara stated. “As savings dwindle and reliance on credit escalates, it’s critical to adopt more effective approaches for assessing affordability and identifying vulnerable borrowers at an early stage, before defaulting on loans becomes inevitable.”

Sugihara underscored the significance of leveraging insights into Borrower Vulnerability to preempt financial distress, advocating for a systemic overhaul to foster a fairer, more inclusive financial landscape.

“Last year’s Consumer Duty regulations are merely the beginning,” Sugihara remarked. “The financial system demands immediate reform to establish a fairer, more inclusive model center around vulnerable borrowers. To achieve this, lenders must harness insights into borrower vulnerability to pinpoint areas of need before it’s too late.”