Forecasts point to modest lending growth, softer purchases and rising refinancing volumes
Overall gross mortgage lending is forecast to edge up by 4% to £300 billion in 2026, even as tighter affordability is expected to slow housing market activity and reduce property transactions by around 10,000 compared with 2025, according to banking trade body UK Finance.
In its latest Mortgage Market Forecast, UK Finance forecasts around 10,000 fewer property transactions in 2026 than in 2025, alongside a 10% increase in external remortgaging and a 2% rise in product transfers.
Around 1.8 million fixed rate mortgages are due to mature next year, while arrears are projected to fall by a further 5%.
Purchase lending and buy-to-let growth expected to level off through 2026
Lending for home purchases has grown by 22% this year to £176 billion, boosted by a surge in completions ahead of the stamp duty increase in April. UK Finance expects this pace to slow in 2026, with purchase lending forecast to edge up by 2% to £180 billion as high borrowing costs continue to weigh on affordability relative to household incomes.
New buy-to-let lending reached £11 billion in 2025, an 11% increase on the previous year. However, this level is expected to hold steady in 2026, with growth in the sector constrained by recent tax changes and regulatory measures affecting landlords.
Across the market, UK Finance anticipates that total housing transactions will ease slightly from 1.21 million in 2025 to 1.20 million in both 2026 and 2027.
“The mortgage market showed strength in 2025, particularly for house purchases.” said James Tatch (pictured right), head of analytics at UK Finance. “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.”
Refinancing volumes set to further grow
The second half of 2025 saw a marked rise in refinancing, as a large cohort of borrowers reached the end of their fixed rate periods. An estimated 1.6 million fixed rate mortgages have expired this year, with around 1.8 million due to end in 2026.
External remortgaging is expected to have risen by 17% in 2025 to about £71 billion, while internal product transfers, where borrowers switch deals with their existing lender, are projected to have grown by 18% to £256 billion.
UK Finance forecasts further increases next year, with external remortgage lending predicted to expand by 10% to £77 billion and product transfers to rise by 2% to £261 billion.
“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,” Tatch said.
Arrears on downward trend; possessions to increase
Mortgage arrears have continued to decline, with the number of cases falling to 92,100 in 2025, down from 104,800 a year earlier. UK Finance expects arrears to drop by a further 5% in 2026, to around 87,500 cases.
Possessions, by contrast, have moved higher as lenders and the courts return to more typical operating levels after the pandemic period. UK Finance estimates there were 8,600 possessions in 2025 and projects a 9% increase to about 9,400 in 2026.
“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,” Tatch said. “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.
UK Finance stresses that repossession remains a last resort within the industry and that customers concerned about meeting payments should contact their lender to discuss available support.
“As always, help is available for customers who are worried about paying their mortgage,” Tatch said. “Speak to your lender as early as possible to explore the tailored support options they have available.”
Commenting on the wider housing and lending environment, Mary-Lou Press, president of NAEA Propertymark, said: “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.”
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