UK Finance has released its latest Mortgage Market Forecast for 2026 and 2027, projecting a 4% increase in overall gross lending next year alongside a modest decline in property transactions.

The trade body forecasts gross lending of £300 billion in 2026, up from £288 billion in 2025. This growth is expected to come despite around 10,000 fewer property transactions year-on-year, with volumes easing from 1.21 million to approximately 1.20 million.

Lending for house purchase is forecast to increase by 2% to £180 billion. This follows a strong performance in 2025, when house purchase lending rose by 22% to £176 billion, partly driven by a spike in activity ahead of the April stamp duty increase.

HOME AND BUY-TO-LET ACTIVITY

UK Finance expects growth in house purchase lending to slow next year as affordability pressures intensify, with mortgage payments remaining high relative to borrower incomes.

New buy-to-let purchase lending rose by 11% in 2025 to £11 billion. However, this is forecast to remain flat in 2026, with activity constrained by additional taxation and regulatory pressures in the sector.

Overall property transactions are expected to decline slightly, from 1.21 million in 2025 to 1.20 million in both 2026 and 2027.

REFINANCING

Refinancing is expected to remain a key driver of lending volumes, as large numbers of borrowers reach the end of fixed-rate mortgage deals.

UK Finance estimates that 1.6 million fixed-rate mortgages expired in 2025, with around 1.8 million due to mature in 2026. This supported strong refinancing growth this year, with external remortgaging rising by 17% to £71 billion and product transfers increasing by 18% to £256 billion.

In 2026, external remortgaging is forecast to grow by 10% to £77 billion, while product transfers are expected to rise by 2% to £261 billion.

ARREARS AND POSSESSIONS

Mortgage arrears fell during 2025 to 92,100 cases, down from 104,800 the previous year. UK Finance expects arrears to continue to decline by 5% in 2026, falling to 87,500.

Mortgage possessions increased in 2025 as court and industry activity continued to normalise following the pandemic. UK Finance estimates there were 8,600 possessions last year and forecasts a 9% increase in 2026 to 9,400, although volumes remain low by pre-pandemic standards.

James Tatch, head of analytics at UK Finance, said: “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.

“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.”

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 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 to scan the mortgage market and move forwards with a more competitive or suitable deal, and potentially save significant sums of money each month.”