Banks loosened the flow of credit to households at the end of last year with lenders reporting greater availability of both secured and unsecured borrowing according to the Bank of England’s latest Credit Conditions Survey.
The survey, covering the three months to the end of November, shows an improvement in the supply of secured credit to households in the fourth quarter, alongside increased availability of unsecured lending such as credit cards and personal loans.
Lenders expect both to edge higher again in the first quarter of this year, suggesting that funding conditions are becoming more supportive despite a subdued economic backdrop.
Appetite for secured lending to buy homes fell in the fourth quarter and is expected to weaken further in the first quarter, pointing to continued caution among would-be buyers.
REMORTGAGE DEMAND STEADY
Demand for remortgaging was steady at the end of last year but is expected to pick up, reflecting the growing pool of borrowers rolling off higher fixed-rate deals.
Unsecured borrowing was more resilient. Lenders reported an increase in overall demand in the fourth quarter, driven largely by credit cards, with demand expected to stabilise rather than rise further in early 2026. Demand for other forms of unsecured credit declined and is forecast to fall again.
Default rates on secured household loans fell in the fourth quarter and are expected to fall again, while losses given default were unchanged.
Unsecured lending defaults rose, however, and are expected to increase further, covering both credit cards and other personal loans.
ACTIVITY PICKING UP
Simon Gammon, managing partner, Knight Frank Finance, said: “Lenders were feeling pessimistic over the outlook for the housing market during the weeks leading up to the November Budget, which is unsurprising given all the speculation over tax rises and public spending cuts.
“House price data for December largely confirmed their view; average values dropped 0.6% during the month, according to Halifax.
“That said, lenders were concerned that the Budget might prompt a bout of macroeconomic volatility and that didn’t come to pass.
“Instead, most of the major lenders cut mortgage rates during the first fortnight of January, which is fuelling momentum.
“We expect activity to keep picking up as the lenders continue to trim rates during the weeks ahead.”
BUDGET SPECULATION UNHELPFUL
Mark Harris, chief executive of mortgage broker SPF Private Clients, added: “It’s unsurprising that demand for secured lending for house purchase decreased in Q4 as would-be buyers put decisions to move on hold as they waited to see what the Budget had in store.
“Speculation regarding various property taxes was incredibly unhelpful, creating uncertainty and inertia in the housing market.
“Demand for remortgaging was unchanged and is expected to pick up this quarter. Around 1.8m borrowers are forecast to remortgage this year, with many of those on five-year fixes in particular facing a payment shock.
“With lenders reducing their rates in recent days and weeks, shopping around to see what is available from other lenders, rather than automatically taking the product transfer from your existing lender, is a sensible approach.”
BORROWER BOOST
And he added: “Lenders report that overall spreads on secured lending relative to Bank Rate narrowed in Q4 and are expected to narrow further this quarter.
“This is excellent news for borrowers with lenders keen to lend and competing with each other on rate. With 2-year fixes available from 3.5% and 5-year fixes from just above 3.7%, the rock-bottom rates of the past may be long gone but pricing is becoming increasingly palatable.
“Default rates on secured loans decreased in Q4 and are expected to continue to decrease in this quarter.
“This is encouraging news, suggesting that borrowers are not overstretching themselves and that lenders are working with those who might find themselves in difficulty to come up with workable solutions.”
