KPMG UK has provided an extensive analysis of the Bank of England’s Q1 2026 Credit Conditions Survey, cautioning industry participants that the UK lending market is showing clear signs of mounting stress despite some areas of stability. KPMG’s researchers emphasized that rising default rates by the United Kingdom’s consumers are now revealing deeper underlying tensions in household finances and borrowing behavior.
Karim Haji, Global and UK Head of Financial Services at KPMG, described the situation as one where pressure is steadily building.
He noted that the ongoing effects of geopolitical tensions, particularly their influence on fuel prices, are placing fresh burdens on family budgets.
Meanwhile, the lingering consequences of elevated living costs and mortgage rates continue to work their way through the economy.
Haji stressed that FIs face a delicate task. They must continue to actively support customers while carefully controlling their own exposure to risk in an environment still clouded by uncertainty.
The survey findings, as interpreted by KPMG, point to mixed signals in lending demand.
Requests for loans to buy homes remained flat, which Haji attributed to persistently high borrowing costs and tight affordability conditions that are discouraging major financial commitments.
In contrast, activity in remortgaging has increased as borrowers seek to lock in new terms when their existing fixed-rate agreements expire.
This trend reflects households proactively managing their mortgage obligations rather than taking on new debt for property purchases.
Meanwhile, demand for unsecured credit has held fairly steady during this time-period.
According to Haji’s assessment, this suggests many families are relying on credit cards and personal loans to cover everyday expenses that have become harder to manage amid rising prices. And this is not really a good sign because it shows that consumers are not earning actual income and may be dipping further into their savings (if they had any to begin with) and are now spending money they don’t have.
The pattern indicates a gradual shift toward using borrowing as a short-term buffer for routine spending rather than for larger investments.
Haji also highlighted a growing divide among UK based borrowers.
While a portion of customers can still secure financing without difficulty, others are starting to experience challenges in meeting repayment schedules.
These early difficulties, he suggested, could mark the beginning of a broader deterioration in credit quality if economic conditions do not materially improve.
With inflationary pressures and interest rate effects still filtering through the economy, lenders are now being urged to maintain a balanced approach that protects both their balance sheets and the wider business environment.
Haji’s analysis underscores the need for vigilance as the full picture of household resilience emerges over the coming months. Overall, KPMG’s latest perspective / outlook on the Q1 2026 survey paints a picture of cautious stability trying to mask fragile foundations.
The unchanged appetite for home purchase loans, along with rising remortgaging and unsecured borrowing, reflects how UK based households are adapting to a relatively higher-cost environment. And yet the KPMG update also concluded that the increase in defaults serves as a fairly strong indication that these adaptations may not be sustainable in the long-term.