The UK lending market sent mixed signals in the second quarter of 2026. Banks reported stronger mortgage demand and greater availability of unsecured borrowing, but smaller companies faced slightly tighter credit conditions and household defaults on unsecured loans increased.

The findings come from the Bank of England’s Q2 2026 Credit Conditions Survey, conducted between 26 May and 12 June. Lenders reported changes during the three months to the end of May and gave expectations for the period to the end of August.

Mortgage Demand Increased

Availability of secured credit to households, which mainly covers mortgages, was unchanged in Q2. Lenders nevertheless expect it to increase during Q3.

Demand moved more noticeably. Banks reported an increase in borrowing for both home purchases and remortgaging during Q2. However, they expect demand in both categories to decrease in the following three months.

Mortgage pricing became somewhat less favourable during Q2, as lenders reported wider spreads relative to Bank Rate or relevant swap rates. Those spreads are expected to narrow again in Q3.

For borrowers, this suggests that lenders may become somewhat more willing to provide mortgages even as demand cools.

Consumer Credit Became More Available

Unsecured credit availability increased during Q2, covering borrowing such as credit cards and personal loans. Banks expect that availability to decrease in Q3.

Overall demand for unsecured borrowing was unchanged. Credit-card demand decreased slightly, while demand for other forms of unsecured credit increased.

Pricing moved in borrowers’ favour overall, with spreads on unsecured lending narrowing in Q2. Banks expect another narrowing during Q3.

Credit-card conditions were more mixed. Interest-free periods for balance transfers became shorter, while introductory periods for purchases also decreased. Lenders expect purchase-related interest-free periods to increase slightly in Q3.

Defaults Are Rising on Unsecured Loans

One of the clearest areas of concern was household unsecured borrowing.

Banks reported an increase in default rates across total unsecured lending during Q2, including both credit cards and other loans. They expect overall unsecured defaults to rise again in Q3, with further deterioration specifically anticipated for credit cards.

Mortgage defaults, by comparison, remained unchanged and are expected to remain stable during Q3.

Losses when mortgage borrowers did default increased during the second quarter, although lenders do not expect another increase over the following three months.

Smaller Businesses Faced More Pressure

Overall corporate credit availability remained unchanged, but conditions were not identical across company sizes.

Banks reported a slight decrease in credit availability for small and medium-sized businesses, while availability for large companies remained unchanged.

Demand for loans from small and medium-sized businesses also decreased during Q2. Demand from larger companies was broadly stable. Lenders expect borrowing demand across all three business categories to remain unchanged in Q3.

Loan pricing also favoured larger companies. Lending spreads to small and medium businesses were unchanged, while spreads for large companies narrowed.

A Mixed Outlook for Borrowers

The survey does not point to a broad contraction in UK lending. Mortgage credit may become easier to obtain, and financing conditions for large businesses remain relatively stable.

The weaker areas are more concentrated: smaller businesses are seeing slightly reduced credit availability, while rising unsecured defaults suggest growing pressure among some households.

The Bank of England stresses that the figures represent lenders’ assessments rather than its own judgment of credit conditions. The next survey, covering Q3 2026, is scheduled for publication on 8 October 2026.