Demand for secured lending for house purchases in the UK increased in the three months to the end of May (Q2), research published by the Bank of England (BoE) has indicated.

According to the findings of the latest Credit Conditions Survey by the BoE, this demand is now expected to fall in Q3. In terms of remortgaging, demand for secured lending saw a slight decrease in Q2, and this is expected to be unchanged in Q3.

For the BoE’s survey, lenders were asked to report changes in the three months to the end of May 2022 (Q2), relative to the period between December and February, and then expected changes in the three months to end of August 2022 (Q3), relative to the period between March and May.

Lenders reported that the availability of secured credit to households fell in Q2, and that this is expected to decrease slightly over the three months to the end of August.

Overall spreads on secured lending to households – which is relative to the bank’s base rate or the appropriate swap rate – narrowed slightly in Q2, although this is expected to widen in Q3. Furthermore, the net percentage balance for changes in default rates on secured loans to households was slightly down in Q2, and this is expected to increase in Q3.

Senior personal finance analyst at Hargreaves Lansdown, Sarah Coles, commented: “The banks expect us to keep reaching for our credit cards to plug the growing gaps in our finances during the summer too. Unfortunately it means people risk building up even bigger problems further down the track, which is one reason why the banks are toughening up.

“So far, lenders have been keen to make this borrowing available, but over the summer, they’re planning to tighten the purse strings. With inflation at this level, they’re mindful that there’s a rising risk that people will struggle to stay on top of their debts.

“The problem with borrowing for everyday costs is that you’re adding more interest and repayments to your ongoing costs, so that every month, the impossible challenge of making ends meet becomes harder. As we’ve gone through the year, rising interest rates have added to the problem.”

Coles added: “It got tougher to secure a mortgage during these three months, as banks started factoring higher prices into their mortgage calculations. They said they expected to make it even harder to borrow over the summer.

“It’s yet another pressure on the housing market, which is showing signs that it’s starting to cool. And while demand for mortgages increased during the spring, the banks are expecting this to fall away a little over the coming months.”

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