Mortgage lending is expected to rise in 2026 even as housing market activity softens and affordability pressures persist, according to new forecasts from the industry trade body UK Finance.
Gross mortgage lending is projected to increase by 4% next year to £300bn, driven largely by refinancing activity as millions of borrowers come to the end of fixed-rate deals.
However, the number of property transactions is expected to edge lower, with around 10,000 fewer sales than in 2025.
UK Finance forecasts 1.2 million property transactions in 2026, down 1% year on year, reflecting the impact of higher mortgage payments relative to income, despite modest regulatory adjustments designed to support lending.
TRANSACTION SURGE
Lending for house purchases is expected to grow by 2% to £180bn next year, following a strong 2025 that saw purchase lending rise 22% to £176bn.
This year’s activity was boosted by a surge in transactions ahead of April’s stamp duty changes, but UK Finance said that momentum would be harder to sustain as affordability constraints tighten.
Buy-to-let lending is forecast to remain flat at £11bn, after growing by 11% in 2025. UK Finance said additional taxes and regulatory pressures on landlords would continue to weigh on investor demand.
Refinancing is expected to be a key driver of market activity in 2026, with around 1.8 million fixed-rate mortgages due to expire, up from 1.6 million in 2025.
FALLING ARREARS
External remortgaging is forecast to rise by 10% to £77bn, while internal product transfers – where borrowers stay with their existing lender – are expected to increase by 2% to £261bn.
Arrears are projected to continue falling, with UK Finance forecasting a 5% decline to 87,500 cases in 2026, moving closer to the historic lows seen in 2022.
Mortgage possessions, however, are expected to rise by 9% to 9,400 as court activity continues to normalise following the pandemic, although levels remain well below pre-pandemic norms.
UK Finance said that while lending volumes would be supported by refinancing, the outlook for the housing market remained constrained by stretched affordability and a subdued level of transactions heading into 2027.
AFFORDABILITY CONSTRAINTS
James Tatch, Head of Analytics at UK Finance, says: “The mortgage market showed strength in 2025, particularly for house purchases.
“But even with welcome tweaks to lending regulations this year, affordability is now very tight and this is likely to limit borrowing options for potential buyers in 2026.
“There was expected growth in remortgage activity this year, and with more households coming off their fixed rates next year, we expect to see further growth in 2026.
“Meanwhile, the number of customers in arrears continued to improve as cost and rate pressures eased, and we are now moving towards the historic lows seen in 2022.”
He adds: “Although the number of possessions rose, they remain very low by pre-pandemic comparisons. We do expect a small rise next year, but possessions will remain at low volumes.
CONFIDENCE BOOST
Mary-Lou Press, President of NAEA Propertymark (National Association of Estate Agents), says: “As 2025 comes to its conclusion, we have seen steady progress across the year in many areas.
“We have witnessed three base rate cuts, all of which have all helped enhance consumer confidence and influenced more competitive mortgage products from many lenders.
“We have also seen lenders turn their attention to helping first-time buyers with more specialist products, and a similar approach taken regarding later-life lending as well.
“As we head into 2026, it will not be without challenges. However, many economists are hoping for further base rate cuts into the new year.
“For many people with fixed-rate mortgages that may be coming to an end soon, it can represent a brilliant opportunity for people to scan the mortgage market and move forwards with a more completive or suitable deal, and potentially save significant sums of money each month.”
