Lenders expect a higher level of household default on mortgage payments and other loan commitments in the first three months of this year, according to a Bank of England survey.

Financial institutions expect “changes in default rates on secured loans to households remained unchanged in the fourth quarter [of 2020], but was expected to increase in the first quarter [of 2021],” says the Bank’s quarterly Credit Conditions Survey.

The extended length of pandemic disruption, which saw lockdown restrictions begin in March, means that a number of struggling households may reach the end of their mortgage payment holidays in this period, leading to defaults, analysts suggest.

Default rates for other types of personal lending such as credit cards and personal loans are also expected to rise in this period.

However, the report also expected the availability of mortgage credit to increase in the first quarter of this year.

Lenders said mortgages became more expensive at the end of 2020, but are set to fall in price at the start of this year.

The end of the stamp duty holiday, at the end of March, is widely expected to ease demand in the following weeks, which may see lenders compete harder for mortgages.

Hargreaves Lansdown personal finance analyst Sarah Coles warns that a number of homeowners who have struggled to keep up with their payments may be caught out by the length of the pandemic recovery this year, which looks likely to stretch into much of this year.

Coles says: “More people are set to fall short on mortgage and credit card payments, while an outbreak of cold feet in the property market is likely to mean less demand for mortgages for house purchases.”

“The heat is coming out of the housing market as the stamp duty holiday draws to a close, and much of the pent-up demand has worked its way through the system. But there are also signs that bleaker aspects of the pandemic are starting to make themselves felt.

“Some homeowners have worked through the pandemic with their income unscathed, but enormous numbers saw their income cut as they lost work or went onto furlough. Some of them made a Herculean effort and somehow stayed on top of their bills.

“Others have done all they can, and taken every available payment holiday, and are still struggling. At the beginning of this year, the high street banks expect them to start defaulting on mortgage payments.”

The survey was carried out from 23 November to 11 December 2020.