The Bank of England’s Credit Conditions survey showed that lenders gave a reading of minus 13.9% for house purchase demand in the last quarter of 2025, compared to a score of 0.7% given during the previous quarter. Lenders expected demand to be low going forward, based on a reading of minus 11% for Q1 2026.
Negative scores represent a decline, while positive scores suggest an increase.
Declines in demand were seen across both prime mortgage lending and buy to let (BTL), with lenders giving readings of minus 15% and minus 27.8% for each market respectively.
Demand for remortgaging generated a score of minus 3.9% for Q4, indicating a slight decline from the reading of 25.9% in Q3. Lenders predict a rebound in demand, however, according to a score of 17.4% for the first quarter of 2026.
Mark Harris, chief executive of SPF Private Clients, said: “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.”
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Simon Gammon, managing partner at 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.”
Lenders want to lend
Lenders reported an appetite to provide mortgages, as they said the availability of secured credit to households rose in Q4 and was set to increase slightly in Q1.
They gave a score of 30.1% for the availability of mortgages in Q4, down from 36.9% during the previous quarter. Regarding the availability of secured credit for the next three months, lenders gave a reading of 9.1%.
The main reasons for the greater availability of mortgages were market share objectives and changing risk appetite. Lenders reported that house prices and funding conditions held little bearing on mortgage access, while the economic outlook was not currently influencing this.
Lenders said the availability of mortgages for borrowers at 75% loan to value (LTV) and lower had improved more than access for borrowers at higher LTVs. Respondents said the willingness to lend to borrowers with less than 10% equity had risen slightly in Q4, with a score of 7.1%, and was expected to increase notably in Q1, based on a predictive score of 19.2%.
Lenders reported a deterioration in the credit quality of new lending, with a reading of minus 7.6%, compared to minus 2.7% in Q3. However, this was expected to be unchanged over the next three months.
Default rates fall
Lenders said default rates on mortgages decreased in Q4 and were expected to decline further in Q1. Losses given default on mortgages were flat in Q4 and set to remain flat in Q1.
Lenders said overall spreads on mortgages relative to the base rate or swap rate narrowed in Q4 and were expected to narrow in Q1.
Harris added: “This is excellent news for borrowers with lenders keen to lend and competing with each other on rate. With two-year fixes available from 3.5% and five-year fixes from just above 3.7%, the rock-bottom rates of the past may be long gone, but pricing is becoming increasingly palatable.”
He said it was “encouraging” that default rates fell, saying it suggested 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”.
