After a muted 2026, mortgage balances are projected to grow at their fastest pace since 2022
UK mortgage lending is projected to increase steadily from 2027 after a softer year in 2026, according to the latest EY ITEM Club Bank Lending Forecast, offering a cautiously improving outlook for home loan growth.
Net mortgage lending is expected to ease from 3% in 2025 to 2.5% this year, as stretched affordability and only limited reductions in mortgage rates continue to weigh on housing demand.
However, EY ITEM Club anticipates a gradual rebound as economic conditions improve and the labour market remains firm. Net lending on home loans is forecast to rise to 3.3% in 2027 and 3.5% in 2028, the strongest growth in six years.
The forecast suggests that affordability will stay under pressure in the near term. House prices are projected to remain elevated, while mortgage pricing is not expected to fall significantly below current levels, constraining some borrowers’ capacity to transact or refinance. Over time, though, a firmer economic backdrop and a more secure jobs market are expected to underpin renewed demand for owner-occupation and remortgaging.
The mortgage projections sit within a wider picture of a temporary cooling in bank lending before a recovery later in the decade. After expanding by 6.9% (net) in 2025, bank lending to businesses is expected to slow to 3.5% (net) in 2026 as global and domestic headwinds dampen confidence and weigh on investment. If the economy strengthens as anticipated from 2027, net lending to firms is forecast to pick up to 4.5% in 2027 and 4.9% in 2028.
The EY ITEM Club expects this one-year soft patch to be mirrored across total bank lending. Combined lending across mortgages, consumer credit and business borrowing is forecast to slow from 4.1% (net) in 2025 to 3.1% in 2026. As GDP growth is projected to recover from 0.9% in 2026 back to 1.3% in 2027, overall lending growth is also expected to strengthen, reaching 3.8% (net) in 2027 and 4% (net) in 2028 as balance sheets remain healthy and risk appetite improves.
“While geopolitical and macroeconomic challenges are dampening the outlook for corporate and consumer borrowing, slower growth is expected to be temporary, and an uptick is expected from 2027,” said Martina Keane (pictured right), UK and Ireland financial services leader at EY.
“In today’s inherently unpredictable trading environment, waiting for stability is not an option, and given the brighter horizon ahead, a one-year dip in lending growth shouldn’t deter banks from progressing longer-term strategies.
Continuing to focus on AI scaling and governance, digital transformation, cyber-resilience, and climate-conscious growth will be key, and will help ensure firms are well-positioned to capitalise on positive momentum as the economy picks up and confidence strengthens.”
For unsecured borrowing, the forecast indicates that demand will remain comparatively firm. UK consumer credit is expected to grow by 5.8% (net) in 2026, slightly below the 6.1% (net) recorded in 2025. Despite the higher cost of credit, demand is projected to stay resilient as weaker real income growth and greater confidence among higher-spending households lead some consumers to save less and rely more on borrowing to fund expenditure. Consumer credit growth is forecast at 5.7% (net) in 2027 and 5.3% (net) in 2028.
Credit quality is expected to remain broadly stable across business, mortgage and consumer portfolios. Write-off rates on loans to UK businesses are forecast to remain at 0.13% in 2026, 2027 and 2028, in line with 2025, reflecting lower debt-service burdens and generally strong corporate balance sheets.
Mortgage default rates are expected to edge higher but stay low by historic standards. Write-offs on home loans are projected to rise from 0.005% in 2025 to 0.006% in 2026, and to 0.007% in both 2027 and 2028, as more borrowers on fixed rate deals refinance onto higher interest rates. Defaults on consumer credit are also expected to remain contained, with write-off rates forecast at 0.8% in 2026, rising only marginally to 0.9% in 2027 and 2028.
“While trading conditions are likely to be challenging this year for businesses both big and small, and the banks supporting them, it's important to recognise that the outlook is still one of growth,” said Dan Cooper (pictured right), UK and Ireland head of banking and capital markets at EY.
“The pace of growth is set to pick back up from as early as 2027 as the UK economy strengthens, and all signs point to 2026 being a temporary dip, rather than a long-term slowdown.
“The UK's banks are well capitalised and increasingly resilient and, with a brighter outlook ahead, now is not the time for leaders to press pause on their strategic priorities.”
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