The end of mortgage payment holidays amid the ongoing pandemic is one reason lenders anticipate an increase in default rates at the beginning of 2021.  indicated in the Bank of England’s credit conditions survey that they

However, banks tipped the availability of mortgages to increase in the first three months of 2021, according to the Bank of England’s credit conditions survey compiled in the final quarter of last year.

In the survey, banks said mortgages became more expensive at the end of last year but are set to fall in price at the start of 2021.

Borrowers with higher loan to value (LTV) ratios of more than 75% are expected to benefit from a wider availability of mortgages.

The end of the stamp duty holiday is widely expected to take some of the steam out of demand in the coming weeks, meaning lenders could potentially expect to compete harder for remaining borrowers.

Demand for remortgaging is forecast as increasing at the start of 2021.

Sarah Coles, personal finance analyst at Hargreaves Lansdown warned that the winter has sent a chill through the banks, as the impact of the pandemic starts to bite.

“More people are set to fall short on mortgage and credit card payments, while an outbreak of cold feet in the property market is likely to mean less demand for mortgages for house purchases,” she said.

“The heat is coming out of the housing market as the stamp duty holiday draws to a close, and much of the pent-up demand has worked its way through the system. But there are also signs that bleaker aspects of the pandemic are starting to make themselves felt.

“Some homeowners have worked through the pandemic with their income unscathed, but enormous numbers saw their income cut as they lost work or went onto furlough. Some of them made a Herculean effort and somehow stayed on top of their bills.

“Others have done all they can, and taken every available payment holiday, and are still struggling. At the beginning of this year, the high street banks expect them to start defaulting on mortgage payments.”

John Goodall, chief executive of Landbay, agreed that demand was likely to ebb away.

He added: “The key driver for the increase in demand for house purchase borrowing in Q4 2020 was the stamp duty holiday. It does not surprise me that demand is likely to fall in Q1 this year as buyers will no longer benefit from this tax break.

“I agree with the data showing an expected rise in remortgage business during the start of this year. We are experiencing high levels of applications in the buy-to-let space and expect this to continue over the next few months.”