Mortgage lenders expect the availability of home loans to improve slightly in the three months to the end of February, according to the latest Credit Conditions Survey from the Bank of England.
Banks and building societies also said that mortgage availability for households had already increased during the three months to the end of November 2025, continuing a gradual easing in lending conditions.
However, despite improved access to mortgages, lenders reported a slowdown in demand from home buyers during the final quarter of 2025. This weaker appetite for borrowing was also expected to carry through into the first quarter of 2026, suggesting ongoing caution among prospective purchasers.
In contrast, demand for remortgaging remained flat towards the end of last year but is forecast to pick up in early 2026. This may reflect more borrowers actively reviewing their options as fixed-rate deals come to an end and pricing becomes more competitive.
Lenders also noted an improvement in mortgage performance, with default rates on household mortgages falling in the closing months of 2025. These defaults are expected to decline further in the early part of 2026, pointing to some stabilisation in household finances for secured borrowing.
Unsecured credit painted a different picture. Credit card defaults rose towards the end of last year and are anticipated to increase again in early 2026. At the same time, demand for credit card borrowing grew in late 2025 and is expected to remain steady in the first quarter of this year.
When it comes to business lending, banks reported little change. Lending to small, medium and large firms was broadly unchanged in the final months of 2025 and is expected to stay at similar levels in early 2026. Default rates edged up slightly for small businesses, while remaining stable for medium-sized and larger companies.
The Bank of England carries out its Credit Conditions Survey every quarter to track shifts in borrowing, lending and credit risk, helping inform its wider financial stability work. The latest survey was conducted between 10 November and 3 December 2025.
Participating lenders were asked to compare conditions in the three months to the end of November 2025 with the previous quarter, and to share expectations for the three months to the end of February 2026. The Bank has stressed that the responses reflect lenders’ views, not its own assessment of credit conditions.
Commenting on the findings, Karim Haji, global and UK head of financial services at KPMG, said the combination of rising unsecured borrowing and weaker mortgage demand highlights ongoing affordability pressures. He noted that many households delayed major purchases but relied more heavily on short-term credit to manage Christmas spending, contributing to higher defaults.
The survey comes against a backdrop of falling mortgage rates, with several major lenders announcing cuts in recent weeks. Both HSBC UK and Nationwide Building Society reduced rates again on Thursday, adding to competitive pressure across the market.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said the recent rate reductions make it more important for borrowers to shop around. He suggested that reviewing the wider market, rather than automatically accepting a product transfer from an existing lender, could lead to better deals.
Meanwhile, sentiment in the housing market appears to be improving. The Royal Institution of Chartered Surveyors (RICS) said expectations for sales activity and house prices are becoming more optimistic among property professionals.
Rob Wood, chief UK economist at Pantheon Macroeconomics, argued that the Bank of England’s survey may be overly downbeat. He said it likely captured the height of uncertainty around the Budget, whereas the more recent RICS survey reflects conditions after that uncertainty eased.
Simon Gammon, managing partner at Knight Frank Finance, added that fears of post-Budget economic volatility had not materialised. Instead, widespread mortgage rate cuts in early January have helped boost confidence, with further momentum expected as lenders continue to trim pricing in the weeks ahead.
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