BOE: Mortgage defaults surge as Iran Crisis continues
The latest Credit Conditions Survey from the Bank of England, which measures demand for new borrowing, has revealed that defaults on loans from January to March have risen to 6.2%.
For secured lending defaults, which include mortgages, the Bank recorded 6.2% in the first quarter of 2026, the highest rates since the last three months of 2024 (7.8%), when the UK had seen several hikes in interest rates.
For unsecured lending defaults, such as credit cards, the Bank reported a fourth consecutive quarter of rising defaults (18.6% in the first quarter of 2026). This was the highest figure since the last quarter of 2023 (25.7%).
According to the Bank’s report, demand for home loans and other debt remained high in the run-up to the Iran war, as borrowing costs fell.
Raj Abrol, CEO of risk platform Galytix said:”What started as a conflict in the Middle East is now showing up in borrowing costs right across the economy. Mortgage rates have jumped from 4.8% to over 5.5% — that’s an extra £1,000 a year on a typical £200,000 mortgage.
The ongoing turmoil of Iran crisis has spooked many of the big banks, leading to a surge in mortgage rates and increased pressure on homeowners. Against this complex backdrop, a rise in defaults could well continue for many months as inflation persists and cost of living crisis worsens. The longer this uncertainty continues, lenders will continue to remain risk averse, making access to credit a bigger challenge for consumers.
But the real concern is what’s happening underneath. The cost of short-term corporate borrowing has more than doubled for lower-rated firms since late February, investment-grade credit spreads have widened 15 basis points, and UK gilt yields have hit 5% for the first time since 2008. When credit gets more expensive across the board, it doesn’t just hit homeowners. It hits businesses funding payroll, SMEs trying to refinance, and consumers whose credit cards and car loans quietly reset higher. With a million fixed-rate deals expiring by September and inflation heading towards 3.5%, the longer this goes on, the more defaults move from a slow creep to something banks have to take seriously.”
Kenny MacAulay, CEO of accounting software platform Acting Office added,“As the Iran crisis rumbles on, surging inflation and higher rates will heap fresh misery on homeowners and businesses alike. In tough times, doubling down with extra reserves and savings is critical for avoiding defaults, especially with the UK’s wider economic outlook stagnating.”