In its Mortgage Market Forecast for 2026, data shows lending for house purchases grew by 22% this year to £176bn, with a notable spike in activity in advance of the stamp duty increase in April.

But next year, UK Finance forecasts growth of 2% to £180bn as affordability pressures become more challenging due mortgage payments remaining high compared to borrower income.

New buy-to-let (BTL) lending was up by 11% in 2025 to £11bn. Next year it forecasts that to remain unchanged, with growth being impacted by additional taxes and regulation in this area.

UK Finance said despite a rise in lending it expects there to be 10,000 fewer property transactions in 2026 compared to 2025.

Overall, the number of property transactions taking place is expected to slightly decline, 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 customers reached the end of their fixed rate deals.

It shows 1.6 million fixed rate mortgages expired in 2025 and around 1.8 million are due to expire in 2026.

This meant external remortgaging grew by 17% to reach an estimated £71bn in 2025, while internal product transfers rose by 18% to £256bn.

UK Finance says it expect steady growth next year in both types of refinancing, with external remortgaging growing 10% to £77bn and product transfers by 2% to £261bn.

Elsewhere, mortgage arrears levels fell this year to 92,100, down from 104,800 the previous year.

It expects arrears to continue to decline by 5% in 2026, to 87,500.

Meanwhile, mortgage possessions rose this year as the industry and courts move back towards normal levels of activity following the pandemic.

UK Finance estimates there were 8,600 possessions in 2025 and expects a 9% increase in 2026 to 9,400.

UK Finance head of analytics James Tatch says: “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.”

Meanwhile, Propertymark NAEA president Mary-Lou Press comments: “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.”

Santander UK head of homes David Morris adds: “This year has seen the market boosted with the stamp duty holiday, reduced mortgage affordability rates and improved loan-to-income multiples ,all helping with the overall challenge of affordability.”

“However, now is not the time to rest on our laurels, as while lending is anticipated to continue to grow in 2026, a reduction in the number of transactions expected suggests that affordability pressures remain and buyers will need to access more money to get onto the property ladder.”

“While the Government remains focused on their homebuilding pledge to ease affordability pressures, we must take this forecast as an incentive in the mortgage industry to continue to find ways to responsibly open-up access to borrowing that will help more buyers feel the security and stability that comes from owning a home.”