Supply of mortgage finance and demand for products both rose in the three months to June, said the Bank of England.

But lenders cautioned that more people could start to fall behind on their repayments.

In its latest Credit Conditions Survey, lender told the Bank that it was easier to get a mortgage in the second quarter of the year than the first, and demand was high.

Lenders expect this trend to continue over the summer but said remortgaging will drive demand while purchase business could dip.

Arrears on the horizon

There’s been no change in how borrowers are managing their monthly mortgage commitments up to now, but lenders expect defaults to rise in the third quarter of this year.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “Borrowing is flowing thick and fast. We’re keen to take on more debt and the banks are equally enthusiastic about lending, because they’re optimistic about the economy, and want to grab market share while they can. But while the tap is firmly turned on, some borrowers risk sinking underwater, and defaults on all kinds of household borrowing are expected to rise.

“As the furlough scheme is phased out over the summer, there’s a good chance that there will be job losses, and people who have been struggling to keep their head above water will finally succumb. At the end of July, the final mortgage holidays will come to an end too, so there won’t be help from industry-wide schemes. It means borrowers will have to rely on whatever they can arrange with their lender.”

Scott Taylor-Barr of Shropshire-based Carl Summers Financial Services, added: “Due to the impact of the Stamp Duty holiday, it’s no surprise mortgage lending figures increased during the second quarter. Banks have become increasingly bullish since the beginning of the year. It’s equally no surprise that banks expect mortgage lending to continue to grow until the end of August, as competition is intense.

“The most pressing question is what will happen to demand and supply once the Stamp Duty holiday is completely over, and the furlough scheme has come to an end? That’s when we could see the current supply/demand dynamic shift.”