Resilient market performance raises questions over whether current affordability rules remain too restrictive
The UK housing market has continued to outperform the broader economy, supported by a mortgage sector that has absorbed higher interest rates more smoothly than many anticipated, according to the Intermediary Mortgage Lenders Association (IMLA).
In its New Normal 2026/27 report, IMLA forecasted that mortgage arrears would keep edging down in 2026 and 2027, even as the remaining borrowers on ultra-low pre-tightening fixed rates moved onto new deals. The association estimated that around 0.85% of mortgage accounts were in arrears at the end of 2025, falling to 0.80% by the close of 2026 and 0.74% by the end of 2027.
IMLA said these historically low arrears levels reflect the impact of cautious lending standards and a regulatory regime built around affordability and stability in the years following the global financial crisis.
“The last two years represented the toughest test the mortgage market has faced since the financial crisis,” said Kate Davies (pictured right), executive director at the Intermediary Mortgage Lenders Association.
“Tight post-crisis safeguards and robust affordability assessments meant borrowers were better prepared for higher rates than many anticipated. As a result, arrears are now falling even before rates have fully normalised.”
IMLA argued that the continued reduction in arrears after what it described as the sharpest interest rate shock in decades raises questions over whether aspects of the current mortgage framework have become overly restrictive.
“The performance of the market over the past two years shows that the system is more resilient than many may have assumed,” said Davies. “Record-low arrears and strong borrower outcomes suggest that regulation and lending practices have been highly effective in managing risk but also that, in some areas, they may have gone further than was strictly necessary.”
The trade body pointed to recent steps by the Financial Conduct Authority to clarify affordability expectations, together with lenders’ own moves to relax certain policy parameters as interest rates fall.
IMLA said these changes show that carefully managed adjustment is possible without weakening consumer protection or financial stability, and it believes the latest arrears data indicate there is room to go further.
The lenders association also highlighted the implications for would-be first-time buyers, including what it describes as a “lost generation” of about 3.5 million households. This group was identified in its earlier report, The Mortgage Affordability Paradox, as households that historically might have been expected to purchase since the financial crisis but have remained in the private rented sector due to affordability pressures and regulatory barriers.
“The evidence now suggests we can afford to be more ambitious,” Davies said. “With arrears low, equity levels high and affordability improving, there is a strong case for continuing to ease access to homeownership in a measured way, so that more first-time buyers can safely take their first step onto the housing ladder.”
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.
