Net mortgage lending is expected to drop from 3% in 2025 to 2.5% this year, as stretched affordability and only limited reductions in mortgage rates continue to weigh on housing demand

UK mortgage lending is projected to rise steadily from 2027 after a softer year in 2026, according to the latest EY ITEM Club Bank Lending Forecast, offering a cautiously improving outlook for home loan growth.

Net mortgage lending is expected to drop from 3% in 2025 to 2.5% this year, as stretched affordability and only limited reductions in mortgage rates continue to weigh on housing demand.

However, EY ITEM Club anticipates a gradual rebound as economic conditions improve and the labour market remains firm. Net lending on home loans is forecast to increase to 3.3% in 2027 and 3.5% in 2028, the strongest growth in six years.

The forecast suggests that affordability will stay under pressure in the near term. House prices are projected to remain higher, while mortgage pricing is not expected to drop significantly below current levels, constraining some borrowers’ capacity to transact or refinance. Over time, though, a firmer economic backdrop and a more secure jobs market are expected to underpin renewed demand for owner-occupation and remortgaging.

The mortgage projections sit within a wider picture of a temporary cooling in bank lending before a recovery later in the decade. After expanding by 6.9% (net) in 2025, bank lending to businesses is expected to slow to 3.5% (net) in 2026 as global and domestic headwinds dampen confidence and weigh on investment. If the economy strengthens as anticipated from 2027, net lending to firms is forecast to pick up to 4.5% in 2027 and 4.9% in 2028.

The EY ITEM Club expects this one-year soft patch to be mirrored across total bank lending. Combined lending across mortgages, consumer credit and business borrowing is forecast to slow from 4.1% (net) in 2025 to 3.1% in 2026. As GDP growth is projected to recover from 0.9% in 2026 back to 1.3% in 2027, overall lending growth is also expected to strengthen, reaching 3.8% (net) in 2027 and 4% (net) in 2028 as balance sheets remain healthy and risk appetite improves.

While geopolitical and macroeconomic challenges are dampening the outlook for corporate and consumer borrowing, slower growth is expected to be temporary, and an uptick is expected from 2027, said Martina Keane, UK and Ireland financial services leader at EY.

In today’s inherently unpredictable trading environment, waiting for stability is not an option, and given the brighter horizon ahead, a one-year dip in lending growth shouldn’t deter banks from progressing longer-term strategies, she said.