Lenders are expecting more borrowers to go into default in the three months to the end of August, according to the latest Bank of England credit conditions survey.

Defaults have remained steady from the three months to the end of February to the three months to the end of May, but they are expected to increase in the period up to the end of August.

Both the availability of credit and demand from borrowers increased in the three months to the end of May compared to the previous quarter.

Lenders reported that demand for both house purchase mortgages and remortgages increased.

They expect lending for remortgages to rise further still in the three months to the end of August, but lending for purchases is expected to decline.

The availability of secured credit is forecast to increase.

Lenders reported that overall spreads on secured lending to households – relative to Bank Rate or the appropriate swap rate – narrowed over the three months to the end of May and were expected to narrow further in the following three months.

Coreco managing director Andrew Montlake says: “It’s curious that banks expect defaults to increase during the third quarter and yet at the same time expect supply to also increase, as they engage in a price war. 

“Banks know that there are a lot of struggling borrowers out there but equally have to lend to meet their targets. 

“It’s a hugely delicate balancing act of lending while accepting that defaults are likely to nudge up. 

“Though demand is likely to drop off between now and the end of August, we’re not expecting a material fall as lifestyle changes triggered by the pandemic are driving transactions. 

“Banks are expecting spreads to narrow once again in the third quarter, which is understandable given the current price war. 

“Higher loan-to-value products is where we’re likely to see most competition in the months ahead.” 

MT Finance director Tomer Aboody says: ‘With an increase in demand for mortgages and remortgaging, buyers and borrowers alike are taking full advantage of the rich seam of liquidity. 

“Banks and non-bank lenders are eager to get funds out, driving pricing down and loan-to-values up. 

“Securing a fixed-rate mortgage at sub-2 per cent for five to ten years gives borrowers the comfort and knowledge that they can afford their monthly outgoings for a good while yet.

“While rates remain low, the housing market will stay buoyant and further price increases are likely as borrowers stretch to buy their dream home.”

North London estate agent and former Royal Institution of Chartered Surveyors residential chairman Jeremy Leaf says: “Not surprisingly, lending in the second quarter remained robust on the back of continuing demand for housing from buyers keen to take advantage of the stamp duty concession before it began to taper off at the end of June.

“Interestingly, provision of finance is still strong which will hopefully help bring about more balance between supply and demand, keeping prices in check.

“On the ground, we have found a large number of potential home movers who were frustrated by the frenzied activity of the last few months will try to take advantage of calmer conditions in future.”