UK banks are expected to put pressure on the mortgage market in the coming months after signs emerged of a rise in corporate and household loan defaults, Invest-Gate reports.

The Bank of England’s (BOE) quarterly survey of credit conditions shows that the availability of housing loans will be reduced in the second quarter. Lenders say that default rates on mortgages, unsecured credit to households, and loans to small and medium-sized businesses rose in the first quarter and are expected to increase further.

The figures confirm that the burden of double-digit inflation and an unprecedented series of interest rate increases by the BOE since the end of 2021 will saddle millions of homeowners with extra mortgage payments.

Bloomberg Economics expects the UK to avoid a recession this year but warns that tighter credit conditions are a major risk that may worry some BOE policymakers.

Notably, the situation regarding the latest credit conditions survey may be another reason for the BOE to pause. Credit tightening is essential to the monetary policy transition process, and policymakers will likely take it as a sign that previous interest rate increases are working.

While banks plan to rein in home loans, they expect mortgage demand to rise sharply in the coming months as borrowing costs fall from the high levels reached during last fall’s market turmoil. Demand for home loans is likely to jump in the second quarter to its highest level in nearly two years.

Simon Gammon, a managing partner at Knight Frank, says: “The housing market is on the firmer ground; mortgage rates have fallen to more acceptable levels and have been flat for several weeks now, and this is likely to boost activity levels during the spring to much stronger levels than they seemed just a few weeks ago.”