Lenders report a tighter quarter for mortgage demand and secured credit as unsecured defaults continue to climb
The Bank of England’s (BoE) Credit Conditions Survey Q3 2026, published on 8 October, recorded a pullback in secured credit availability to UK households. The data covers the three months to end-August 2026. Appetite for both house purchase and remortgage lending receded over the same period.
For UK mortgage brokers, the drop in mortgage demand confirms what many are seeing on the ground. Purchase and remortgage enquiries were quieter over summer, and clients face growing pressure from unsecured debt.
Pricing on secured lending moved in borrowers’ favour, with spreads narrowing in Q3 and expected to narrow further in Q4. Default rates on secured loans fell slightly. Unsecured credit availability also decreased, however, and defaults on credit cards and other unsecured borrowing rose — both are expected to increase again in Q4.
Stay ahead of the UK mortgage market. Subscribe to the Mortgage Introducer daily newsletter for broker news, rate updates, and the industry latest delivered to your inbox every morning.
Why are lenders tightening secured and unsecured credit?
Ryan McGrath, director of second charge mortgages at Pepper Money, said the findings pointed to restraint from lenders and borrowers alike.
“The latest Bank of England Credit Conditions Survey shows caution on both sides of the market,” McGrath said. “Lenders reported that the availability of both secured and unsecured credit to households decreased in Q3, while demand for mortgages, for both house purchase and remortgaging, also fell.
“Across the wider market, lenders reported a further rise in defaults on credit cards and other unsecured borrowing. That combination reinforces why borrowers need access to a range of financial options in the current market conditions.”
McGrath pointed to second charge mortgages as one tool for brokers serving clients who need to raise capital without disturbing existing mortgage terms. Finance & Leasing Association (FLA) data cited by McGrath shows 44,781 second charge mortgages were written in the 12 months to July 2026. That is up 17% on the previous year, with lending rising 25% to £2.38bn.
“For homeowners looking for greater financial flexibility, the decision isn’t simply whether to borrow, but how,” McGrath said. “Giving up an existing mortgage can materially change borrowing costs, so for suitable customers a second charge mortgage can form part of the toolkit, allowing them to access equity in their home while retaining their existing mortgage where appropriate.”
What does falling mortgage demand mean for the UK housing market in Q4 2026?
Lenders expect conditions to improve. Secured lending for house purchase is forecast to increase slightly in Q4, and remortgaging demand is expected to pick up more notably. That aligns with gross mortgage advances reaching £77.4bn in Q2 2026 — the second-highest quarter for new commitments since Q3 2022.
Nathan Emerson, CEO at Propertymark, said the Q3 data, while mixed, pointed toward a more confident close to the year.
“It is encouraging to see growing confidence around the potential demand for secured lending for house purchases and remortgaging in the months ahead,” Emerson said. “While the year has proved challenging for many consumers from an affordability perspective, improved access to finance could provide an important catalyst for greater confidence across the housing sector as we approach the end of the year and head into 2027.”
Emerson also turned attention to the Autumn Budget. “With the Autumn Budget just weeks away, attention will focus on whether the UK Government introduces measures that provide greater certainty for buyers and sellers. Support for first-time buyers would be particularly welcome, while measures that encourage investment in housing could help ensure greater economic confidence over the longer term.”
What the numbers mean for brokers
Purchase and remortgage enquiries both softened over summer, yet lenders expect a recovery through Q4. The BoE’s quarterly credit conditions data on mortgage demand and defaults has consistently shown how affordability shapes supply across the UK lending market. Q3 2026 is no different.
The next survey is due 14 January 2027. For brokers tracking lender appetite for secured and unsecured mortgage lending ahead of that date, the signals are worth watching closely. Recovering remortgage demand, narrowing spreads, and a Budget that could shift first-time buyer activity are all in play.
