Lenders expect mortgage demand to increase over the coming months, according to the Bank of England’s latest Credit Conditions Survey – but experts warn attitudes have shifted since the survey was carried out earlier this year, amid ongoing geopolitical uncertainty.
Demand for secured lending for house purchase was unchanged in Q1, with figures covering the period to the end of February, but was expected to increase in Q2 (between March and May). Demand for secured lending for remortgaging increased in Q1 and was also expected to increase in Q2.
Damien Burke, head of regulatory practice at banking and credit advisory consultancy Broadstone, said the timing of the survey indicates the figures could be misleading.
“The latest Credit Conditions Survey suggests a cautiously improving outlook for the mortgage market at the start of the year, with lenders expecting demand to pick up in the coming months, particularly for house purchases and remortgaging,” he said. “This reflects a degree of pent-up demand as home buyers awaited lower interest rates and a more certain fiscal landscape.
“However, the timing of the survey is important given it was conducted around the beginning of the conflict in the Middle East. The longer uncertainty around the wider global economic consequences lingers, the bigger the impact on borrower confidence is likely to be.”
Mortgage defaults have increased since the beginning of the conflict, rising to 6.2% in Q1 – the highest rate since the Q4 of 2024, when several interest rate hikes saw defaults rise to 7.8%.
Raj Abrol, CEO of risk platform Galytix, said: “What started as a conflict in the Middle East is now showing up in borrowing costs right across the economy. Mortgage rates have jumped from 4.8% to over 5.5% — that’s an extra £1,000 a year on a typical £200,000 mortgage.
“The ongoing turmoil of Iran crisis has spooked many of the big banks, leading to a surge in mortgage rates and increased pressure on homeowners. Against this complex backdrop, a rise in defaults could well continue for many months as inflation persists and cost of living crisis worsens. The longer this uncertainty continues, lenders will continue to remain risk averse, making access to credit a bigger challenge for consumers.
“But the real concern is what’s happening underneath. The cost of short-term corporate borrowing has more than doubled for lower-rated firms since late February, investment-grade credit spreads have widened 15 basis points, and UK gilt yields have hit 5% for the first time since 2008.
“When credit gets more expensive across the board, it doesn’t just hit homeowners. It hits businesses funding payroll, SMEs trying to refinance, and consumers whose credit cards and car loans quietly reset higher. With a million fixed-rate deals expiring by September and inflation heading towards 3.5%, the longer this goes on, the more defaults move from a slow creep to something banks have to take seriously.”
