The Bank of England’s (BoE’s) Credit Conditions Survey polled mortgage lenders between 23 February and 13 March, so responses did not fully reflect recent geopolitical developments.
At the time, lenders expected demand for house purchase to rise over the next three months to May, giving a score of 30% for Q2, compared to a reading of 0.3% in Q1.
They reported a slip in appetite for buy-to-let (BTL) mortgages in Q1, with this forecast to improve over the following quarter.
Overall, lenders said mortgage availability was robust in Q1 and expected to improve notably in Q2, based on a response score of 22%.
Open to lending at high LTVs
The availability of mortgages to borrowers at low loan to values (LTVs) increased slightly in Q1, based on a response score of 7.4%, but was set to decline marginally in Q2, according to the lender score of negative 2%.
By contrast, lenders expected the availability of credit to improve for borrowers at high LTVs. Lenders said they were more willing to lend to people with less than 10% equity in Q1, with a score of 24.9%, but would pull back on this slightly in Q2, giving a reading of 11.9%.
Improved mortgage lending criteria
The criteria for mortgage applications loosened in Q1, according to a score of 11.1%, and lenders said this would remain stable over the next three months.
The share of loans being approved rose, with a score of 22.9%, but again, lenders had expectations for this to stabilise in Q2.
Maximum LTVs improved during the quarter, rising from nought to 12.2% since the previous quarter, and lenders said this would ease further, based on a score of 19.3% for Q2.
Maximum loan-to-income (LTIs) ratios also eased, despite a score decline from 19.3% in Q4 2025 to 7% in Q1, but this was forecast to stay steady going into Q2.
Lending spreads relative to the base rate or appropriate swap rate narrowed in Q1, and mortgage lenders expected no change in Q2, suggesting cheaper mortgage costs relative to the benchmark.
In Q1, lenders reported a slight rise in default rates and said this would decrease in Q2, while losses given default on mortgages were unchanged in Q1 and expected to remain stable in Q2.
Damien Burke, head of regulatory practice at Broadstone, said the survey suggested a “cautiously improving outlook for the mortgage market” and the expectation for activity to increase reflected pent-up demand from homebuyers waiting for lower interest rates.
He added: “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.
“The fall-out from the Ukraine conflict on inflation and mortgage rates remains fresh in the minds of households and even short-term disruption to supply chains can have a long-term impact on the cost of goods. This further amplifies the need for understanding consumers’ individual affordability when assessing for credit products and the benefit of ongoing assessment.”
