Britain’s homeowners and small businesses are facing a fresh squeeze on credit as the fallout from the Iran crisis works its way through the financial system, with the Bank of England reporting the sharpest rise in mortgage defaults in more than a year.
The Bank’s latest Credit Conditions Survey, which gauges lenders’ appetite and the level of demand for new borrowing, showed that defaults on secured loans, chiefly residential mortgages, climbed to 6.2 per cent in the first three months of 2026. That is the highest reading since the final quarter of 2024, when defaults peaked at 7.8 per cent following a succession of interest rate rises by Threadneedle Street.
Unsecured lending told a bleaker story still. Defaults on credit cards, personal loans and overdrafts rose for a fourth consecutive quarter to 18.6 per cent, the highest level since the closing months of 2023, when the figure stood at 25.7 per cent. Taken together, the data suggests that household finances, which had begun to stabilise in the latter half of last year, are once again under serious strain.
According to the Bank’s report, demand for home loans and other forms of credit had remained buoyant in the run-up to the conflict, aided by a steady retreat in borrowing costs. That brief window of optimism has now slammed shut. Since hostilities escalated in the Middle East, lenders have rapidly repriced risk, pushing the average two-year fixed mortgage rate from around 4.8 per cent to beyond 5.5 per cent in a matter of weeks.
For a typical borrower with a £200,000 mortgage, that shift translates into roughly an extra £1,000 a year on repayments, a sum that few stretched households can comfortably absorb on top of stubborn food and energy bills.
Support authors and subscribe to content
This is premium stuff. Subscribe to read the entire article.
