Warning as mortgage defaults rise

The number of borrowers unable to pay their mortgage bills rose unexpectedly in the first quarter and lenders are warning of further defaults if interest rates rise, according to research today.

Mortgage lenders reported the first rise in default rates since the second quarter of 2009 when the UK was still in recession, the Bank of England said.

A balance of 11% of lenders surveyed by the Bank said mortgage defaults rose in the first three months of 2011, whereas they had expected the number to remain flat.

The result comes despite the Bank's base rate being held at a record low of 0.5% and lenders cautioned that a rise in interest rates could see default levels increase further.

The balance of banks that expect an increase in defaults over the next three months increased to the highest level for more than a year - 14.3%.

There was also a further sharp drop in demand for mortgages as prime mortgage applications fell and a further decline is expected in the next three months.