Data from the Bank of England shows that secured credit to households saw a slight increase in the three months leading up to the end of February, alongside a rise in demand for these loans. Lenders reported a net balance of 18.4 for household secured credit during this period, up from 10.4 in the previous quarter, driven by expectations of rising house prices.
The Bank of England’s latest Credit Conditions survey revealed a significant increase in lenders’ expectations for future demand for secured credit, with forecasts rising to a balance of 19.0, up from just 2.4 in the previous quarter. Meanwhile, demand for these loans jumped to a balance of 35.9 for the three months ending in February, a notable improvement from the negative balance of -31.6 seen in the prior quarter.
However, the appetite for lending to borrowers with less than 10% equity in their homes decreased, dropping to a balance of 5.9 from 15.9 in the last quarter. Despite this, lenders expect an uptick in demand for higher loan-to-value lending in the coming quarter, with expectations rising to a balance of 11.2, up from 1.2 previously.
Lenders have been adjusting their interest rates in response to the global economic uncertainty stemming from rising tariffs. These factors have fueled expectations that the Bank of England may reduce interest rates three or four times this year to help support the UK economy.
Paul Matthews, Senior Risk Director at Broadstone, commented, “Despite the recent surge in market uncertainty, the Credit Conditions Survey suggests an expansion in both the availability and demand for household borrowing. This marks a hat-trick of positive economic news for the government in recent weeks, following stronger-than-expected economic growth and a better-than-forecast inflation rate.”
Matthews cautioned, however, that while the loosening of credit conditions could spur economic activity by encouraging investment and consumption, the broader economic outlook remains fragile. He stressed that household confidence will be crucial to fully capitalizing on the growing availability of credit. Ongoing global trade negotiations and market turbulence could still undermine this momentum.
Despite these risks, Matthews pointed to a positive trend in falling default rates, suggesting that there could be light at the end of the tunnel for the UK economy.
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