Lending defaults hits two year high

Latest data from the Bank of England has found that loan defaults have risen to 6.2% in early 2026, the highest since late 2024 (7.8 per cent), when the UK had seen several hikes in interest rates.

Unsecured lending defaults hit 18.6% in Q1 this year, the highest figure since the last quarter of 2023. The ongoing conflict in the Middle East is raising costs, leading to concerns about future defaults.

Lenders reported that demand for secured lending for house purchase was unchanged in Q1 (up until the end of February) following the Autumn Budget, but and was expected to increase in Q2 (March-May). Demand for secured lending for remortgaging increased in Q1 and was also expected to increase in Q2.

There was minimal change regarding consumer demand for unsecured lending, which remained unchanged in Q1 and is expected to remain so in Q2.

Damien Burke, Head of Regulatory Practice at Broadstone, said “The latest Credit Conditions Survey suggests a cautiously improving outlook for the mortgage market at the start of the year, with lenders expecting demand to pick up in the coming months, particularly for house purchases and remortgaging. This reflects a degree of pent-up demand as home buyers awaited lower interest rates and a more certain fiscal landscape.

“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 consumer’s individual affordability when assessing for credit products and the benefit of ongoing assessment.

“The continued stability in unsecured lending demand also highlights a more measured consumer backdrop, with households remaining cautious about taking on additional debt despite some easing in financial pressures.”