Total gross lending is expected to rise 4% to £300 billion by 2026, UK Finance predicts.
The Mortgage Market Forecast to 2026 shows that lending for home purchases grew by 22% this year to £176 billion, with a notable spike in activity ahead of the stamp duty increase in April.
But next year, UK Finance predicts growth of 2% to £180 billion, as pressure on affordability intensifies as mortgage payments remain high compared to borrowers’ incomes.
New buy-to-let (BTL) lending increased by 11% to £11 billion in 2025. Next year it predicts this will remain unchanged, with growth affected by additional taxes and regulations in this area.
UK Finance said that despite an increase in lending, it expects 10,000 fewer property transactions to take place in 2026 compared to 2025.
Overall, the number of real estate transactions taking place is expected to decrease slightly, from 1.21 million in 2025 to 1.20 million in 2026 and 2027.
The second half of this year saw strong growth in mortgage refinancing as more and more customers reached the end of their fixed interest rate agreements.
This shows that 1.6 million fixed-rate mortgages will have matured in 2025 and that approximately 1.8 million will mature in 2026.
This meant that external transfers grew by 17% to an estimated £71 billion by 2025, while internal product transfers increased by 18% to £256 billion.
UK Finance says it expects steady growth in both types of refinancing next year, with external refinancing increasing by 10% to £77 billion and product transfers by 2% to £261 billion.
Elsewhere, mortgage arrears fell to 92,100 this year, down from 104,800 the year before.
She expects payment arrears to continue to decrease by 5% in 2026, to 87,500.
Meanwhile, mortgage holdings have risen this year as the industry and courts return to normal activity levels following the pandemic.
UK Finance estimates there were 8,600 assets in 2025 and expects a 9% increase to 9,400 by 2026.
British finance head of analysis James Tatch says: “The mortgage market showed strength in 2025, particularly in home purchases. But even with welcome changes to lending regulations this year, affordability is now very tight and this is likely to limit borrowing options for potential buyers in 2026.”
“Growth in refinancing activity was expected this year, and with more households moving away from fixed rates next year, we expect further growth in 2026.”
“Meanwhile, the number of customers in arrears continued to improve as cost and rate pressures eased, and we are now heading towards the historic lows of 2022.”
“While asset counts have increased, they remain very low in pre-pandemic comparisons. We do expect a small increase next year, but volumes will remain low.”
Meanwhile, Mary-Lou Press, president of Propertymark NAEA, said: “As 2025 draws to a close, we have seen steady progress in many areas throughout the year. We have witnessed three base rate cuts, all of which have helped boost 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 has also been taken in relation to later-stage lending.”
“As we head into 2026, this will not be without challenges. However, many economists are hoping for further cuts to the base rate in the new year.”
“For many people with fixed rate mortgages that may expire soon, this could be a brilliant opportunity to scan the mortgage market and move forward with a more complete or suitable deal, potentially saving significant sums of money every month.”
David Morris, head of homes at Santander UK, added: “This year the market has been boosted by the stamp duty holiday, lower mortgage affordability rates and improved loan-to-income multiples, all of which have contributed to the overall affordability challenge.”
“However, this is not the time to rest on our laurels because while lending is expected to continue to grow into 2026, a reduction in the expected number of transactions suggests that affordability pressures remain and buyers will need more money to get onto the property ladder.”
“As the government remains focused on its promise to build homes to ease affordability pressures, we should see this forecast as an impetus for the mortgage industry to continue finding ways to responsibly open up access to lending, helping more buyers feel the security and stability that comes from owning a home.”