Lenders have warned they expect to see an increase in loan defaults over the coming months as the cost of living crisis bites.

The latest Bank of England credit conditions survey showed that lenders predicted that mortgages, unsecured lending and business loans will see a jump in defaults over the three months to May.

Nevertheless, firms said they expect losses on these loans to remain stable for the period.

It comes after banking firms and credit providers said they saw a decrease in defaults for both secured and unsecured loans in the latest quarter to February.

Lenders also told the central bank that they plan to rein in mortgage lending by the greatest amount since the start of the pandemic.

Soaring interest rates have resulted in lenders trimming back their offer of mortgages and tightening some eligibility criteria.

“Lenders expected the availability of secured credit to decrease over the next three months to May 2022,” the report said.

However, lenders said that the availability of mortgages and other secured credit remained unchanged over the previous quarter.

The Bank of England also said lenders showed that demand for unsecured lending increased in the three months to February and is expected to rise further in the current quarter.

Lenders told the central bank this was driven by increased demand for credit cards and loans.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “With inflation gathering momentum, and eye-watering price rises for many of the essentials, it has forced more of us to borrow to make ends meet.

“Credit card borrowing grew faster than any other month on record in February – the most recent month we have data for.

“But while this feels like a solution in the short term, you’re building up problems for the future, because you’re adding interest and repayments to the ever-growing mountain of monthly costs, which makes it harder and harder to stay on top of our finances each month.”