Bank of England Survey Shows UK Mortgage Demand Fell in Q3, With Lenders Expecting a Rebound
UK lenders reported a fall in demand for mortgages in the 3 months to the end of August, the Bank of England’s Credit Conditions Survey for the third quarter showed on 8 October, with a net balance of minus 37.1 for house purchase lending, after plus 14.9 in the second quarter, and minus 32.5 for remortgaging. Lenders expect both to recover in the fourth quarter. The same day, Governor Andrew Bailey said repeated shocks meant the financial system’s resilience could not be taken for granted.
Mortgage demand turns down in the third quarter
Remortgaging demand swung from a net balance of plus 42.5 in the second quarter to minus 32.5, a turn of 75.0 points on our calculation. Lenders also cut the availability of secured credit, to a balance of minus 15.5 from plus 2.6, with the sharpest reduction for loans above 75 percent of the property’s value, at minus 19.9. They expect house purchase demand to recover to plus 9.8 and remortgaging to plus 23.1 in the fourth quarter.
Unsecured credit tightened too. Availability fell to minus 11.0 from plus 24.3, a swing of 35.3 points on our calculation, while default rates on unsecured loans kept rising, at a balance of plus 23.4 against plus 33.6 in the second quarter. Credit card defaults rose at plus 25.7, after plus 37.4.
UK credit conditions, net percentage balances
| Measure | Q2 2026 | Q3 2026 | Q4 expected |
|---|---|---|---|
| House purchase demand | 14.9 | -37.1 | 9.8 |
| Secured credit availability | 2.6 | -15.5 | 5.1 |
| Remortgaging demand | 42.5 | -32.5 | 23.1 |
| Unsecured credit availability | 24.3 | -11.0 | 5.6 |
| Unsecured default rates | 33.6 | 23.4 | 18.6 |
Positive balances indicate an increase. The survey ran from 17 August to 4 September 2026 and covers the 3 months to the end of August; expectations cover the 3 months to the end of November.
Credit to smaller firms tightens while large companies hold steady
Credit availability to small businesses fell at a balance of minus 12.1 and to medium-sized businesses at minus 10.5, while for large companies it was little changed at plus 4.1. On our calculation, that leaves a gap of 16.2 points between large and small firms. Demand from small and medium-sized companies fell at the same balances, and defaults were unchanged across all 3 sizes.
Bailey, speaking at the Central Bank of Turkey’s Istanbul Economic Forum, said banking systems generally remained well capitalised with no funding stress, but warned that weaker growth, supply disruptions, rising sovereign debt, leveraged markets and expanding exposures linked to artificial intelligence created risks. He said “interest rates cannot produce more oil or gas”, and that looking through a supply shock depends on inflation expectations staying anchored. He did not refer to UK Bank Rate.
Why it matters: Bank Rate stands at 3.75 percent, and 3 of the 9 Monetary Policy Committee members voted in September to raise it. The survey shows credit tightening for households and smaller firms in the third quarter, while lenders’ expectations for the fourth quarter point to a recovery in mortgage demand rather than a further slide, on our reading.
Outlook: The Monetary Policy Committee announces its next decision on 5 November. The fourth-quarter Credit Conditions Survey is due on 14 January 2027.
Sources: Bank of England, The Edge.
