Mortgage credit availability and demand for house purchase and remortgaging all declined during the third quarter of 2026, according to the Bank of England’s latest Credit Conditions Survey.
The quarterly survey of banks and building societies found that lenders had reduced the availability of secured credit to households in the three months to the end of August, recording a net balance of -15.5.
However, lenders expect mortgage credit availability to improve slightly during the final quarter of the year, with the forward-looking balance rising to 5.1.
Demand for mortgages also weakened during the summer. Lenders reported falls in borrowing for both house purchase and remortgaging, although they anticipate a slight recovery in purchase demand and a stronger increase in remortgage activity during the three months to the end of November.
The findings come amid uncertainty over the economic outlook and the direction of borrowing costs, with industry commentators questioning whether the anticipated improvement in mortgage demand will materialise.
CONCERNS OVER MORTGAGE MARKET RECOVERY
Richard Pinch, senior director, banking and credit advisory at Broadstone, said: “The latest Credit Conditions Survey suggests the summer months saw a downturn in consumer demand for major borrowing, with demand for secured lending for house purchase falling in the third quarter.
“After a period of improving confidence earlier in the year, renewed uncertainty over the domestic political and economic outlook, alongside the resurgence of tensions in the Middle East, appears to have weighed on household spending and financial decisions over the summer.”
Pinch questioned the strength of the recovery forecast by lenders, particularly given the approaching Autumn Budget and the possibility of further increases in interest rates.
He said: “While lenders are expecting demand for mortgage and remortgage lending to pick up in the final quarter, there are reasons to question how quickly that recovery will come through. With the Autumn Budget looming and BOE interest rate hikes potentially on the horizon, households may remain cautious about making major financial commitments.”
He also points to the latest Royal Institution of Chartered Surveyors survey, which indicated that buyer enquiries, agreed sales and house prices declined in September.
Pinch added: “For lenders, understanding individual affordability will remain key in this uncertain environment. A more nuanced assessment of borrowers’ financial circumstances will be essential to ensure consumers can access credit where appropriate, while avoiding commitments that may become difficult to manage if household finances come under further pressure.”
UNSECURED CREDIT ALSO TIGHTENS
The Bank of England survey found that unsecured credit availability also declined in Q3, with a net balance of -11. Lenders expect a slight improvement in Q4, reflected in a forecast balance of 5.6.
Overall demand for unsecured borrowing was unchanged during the quarter, although demand for lending other than credit cards increased slightly.
Looking ahead, lenders expect overall unsecured credit demand to increase slightly, with stronger growth in borrowing outside the credit card market. Demand for credit cards is expected to remain unchanged.
Ryan McGrath, director of second charge mortgages at Pepper Money, said: “The latest Bank of England Credit Conditions Survey shows caution on both sides of the market.
“Lenders reported that the availability of both secured and unsecured credit to households decreased in Q3, while demand for mortgages, for both house purchase and remortgaging, also fell.”
McGrath argues that the conditions underline the importance of offering borrowers alternative ways to raise finance, including second charge mortgages where appropriate.
He added: “For homeowners looking for greater financial flexibility, the decision isn’t simply whether to borrow, but how. Giving up an existing mortgage can materially change borrowing costs, so for suitable customers a second charge mortgage can form part of the toolkit, allowing them to access equity in their home while retaining their existing mortgage where appropriate.”
Figures from the Finance & Leasing Association show that 44,781 second charge mortgages were completed in the 12 months to July, an increase of 17% on the previous year. The value of lending rose by 25% to £2.38 billion.
McGrath said: “For those managing multiple unsecured commitments, debt consolidation can provide a clearer, more manageable structure, and help simplify their finances.
“By considering the monthly repayment alongside the total cost of borrowing, the implications of securing debt against their home and their individual circumstances, customers can make a well-informed decision about whether it is the right solution for them.”
SMALLER BUSINESSES FACE CREDIT CONSTRAINTS
Outside the household lending market, the survey identified a deterioration in credit availability for smaller companies, despite overall corporate credit supply remaining unchanged.
Availability to small businesses recorded a net balance of -12.1 during Q3, while medium-sized businesses recorded -10.5. Credit availability for larger businesses was broadly unchanged, with a balance of 4.1.
Lenders anticipate a further slight reduction in credit availability for small and medium-sized businesses during Q4, while conditions for larger companies are expected to remain broadly stable.
Demand for corporate lending from small and medium-sized businesses also declined in Q3 and is expected to fall slightly again in Q4. Demand from large businesses remained unchanged and is expected to stay at similar levels.
