UK lenders expect demand for mortgages and remortgages to decline in the third quarter after reporting stronger activity in Q2, according to the latest Credit Conditions Survey from the Bank of England (BoE).

The survey found demand for secured lending for house purchases and remortgaging increased in Q2, but was expected to fall in Q3.

Overall demand for unsecured lending remained unchanged and was forecast to stay stable, although demand for other unsecured borrowing was expected to weaken.

Lenders also reported secured credit availability was unchanged in Q2, but anticipated it would improve in Q3, while mortgage lending spreads were expected to narrow.

The survey also showed default rates on secured household loans remained stable and were expected to stay unchanged, while defaults on unsecured lending increased in Q2 and were forecast to rise further in Q3.

Commenting on the central bank's findings, Damien Burke, head of regulatory practice at Broadstone, said improving consumer confidence earlier in the year had been disrupted by the conflict in Iran, dampening the lending outlook.

"It demonstrates how concerns around affordability, with increases expected in both the cost of living and the cost of borrowing, can significantly impact market confidence and real lives of consumers," Burke said.

"Lenders will be increasingly focused on gaining a wider understanding, therefore, of borrowers’ individual affordability so that they can continue to support demand in the market."

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