The UK housing market is set for a subdued year in 2026, with high mortgage costs and squeezed household budgets expected to dampen home buying activity, according to a major new industry forecast.
Sales and Lending Forecast: A Modest Slowdown
The banking trade body UK Finance predicts residential property transactions will edge down slightly over the next two years. It forecasts approximately 1.20 million house sales in both 2026 and 2027, a small decrease from the 1.21 million sales recorded in 2025.
While lending for property purchases saw a significant 22% surge last year to reach £176 billion, partly driven by a rush before April's stamp duty change, growth is expected to slow markedly. For 2026, UK Finance anticipates only a modest 2% increase in lending, which would take the total to around £180 billion.
James Tatch, Head of Analytics at UK Finance, commented in December 2025: "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."
Remortgaging Surge and Buy-to-Let Stagnation
A key feature of the coming year will be heightened remortgaging activity. A wave of fixed-rate deals is due to expire, with around 1.8 million mortgages maturing in 2026, following 1.6 million in 2025. This is expected to drive strong refinancing numbers as homeowners seek new deals.
The buy-to-let sector presents a mixed picture. New purchase lending for rental properties grew by 11% in 2025 to £11 billion. However, forecasts suggest this activity will remain flat in 2026, held back by persistent tax and regulatory pressures on landlords.
Arrears, Repossessions, and the Interest Rate Context
There is some positive news regarding mortgage arrears. The number of homeowners in arrears fell to 92,100 in 2025, down from 104,800 the previous year. A further 5% decline is projected for 2026, to 87,500 cases.
UK Finance's report notes that strong underwriting standards since 2014 have kept arrears on newer mortgages at minimal levels. "The increase in arrears seen through the worst of the cost of living crisis was modest and largely concentrated amongst older mortgages that do not have the same level of resilience," the body stated.
In contrast, property repossessions rose as court and lender operations normalised post-pandemic. An estimated 8,600 repossessions occurred in 2025, with a further 9% increase forecast for 2026, to 9,400. Despite this rise, volumes remain low compared to pre-pandemic standards.
The recent reduction in the Bank of England base rate, which currently stands at 3.75% ahead of a scheduled review on 5 February 2026, could offer future relief on borrowing costs for some buyers.
James Tatch concluded: "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. As always, help is available for customers who are worried about paying their mortgage. Speak to your lender as early as possible to explore the tailored support options they have available."
