Mortgage lending growth is projected to rise from 3% in 2025 to 3.3% this year, making it the only major bank lending segment expected to record stronger growth in 2026, EY said.
The increase is due to the impact of interest rate cuts during the second half of 2025, which are continuing to feed through to the housing market and provide a short-term boost to borrowing demand, according to EY.
However, that momentum is expected to fade as rising unemployment and slower income growth weigh on housing demand. Mortgage lending growth is forecast to slow to 2.2% in both 2027 and 2028.
Mortgage write-off rates have also increased steadily since 2022, as households have moved from lower-rate fixed-rate deals to mortgages carrying higher monthly repayments.
With much of that refinancing adjustment now complete, the pace of increase in write-offs is expected to remain limited.
Rates are forecast to edge up from 0.008% in 2025 to 0.010% in 2026 and 0.011% in 2027, before easing slightly to 0.010% in 2028.
Despite the rise, write-off rates are expected to remain low by historical standards.
Dan Cooper, EY UK & Ireland head of banking and capital markets, said mortgage lending was likely to prove more resilient than other forms of borrowing during 2026.
“Household incomes have risen faster than house prices in recent years, which has supported buyer affordability, and interest rate cuts in 2025 are still feeding through, leading to a short-term boost in growth,” he said.
However, Cooper warned that the improvement was unlikely to last.
“Rising unemployment and slower income growth are expected to weigh on housing demand over the coming years, resulting in slower, albeit still positive mortgage lending growth,” he said.
Against continued macroeconomic uncertainty, Cooper said lenders should continue to support customers facing financial pressure while remaining prepared to respond to changes in market conditions, regulation and borrowing demand.
The outlook suggests that, while the mortgage market is expected to remain comparatively robust in the near term, weaker household finances and a softer housing market could limit growth beyond 2026.
