UK mortgage lending is expected to grow more slowly this year than in 2025, while lending by banks to businesses is set to nearly halve amid global and economic uncertainty, according to the EY Item Club bank lending forecast.
The net increase in the overall value of mortgage lending will slow to 2.5% this year, compared with a 3% rise in 2025, as limited improvements in affordability and borrowing costs quell housing demand. Dan Cooper, EY UK & Ireland head of banking and capital markets, said: “The outlook for mortgage lending remains one of growth this year at 2.5%, albeit at a slightly slower pace than 2025. With strong pay growth and relatively small rises in property prices over the last couple of years, most of the improvements in housing affordability have now passed. Mortgage rates are unlikely to fall significantly below current levels and with wage growth slowing, mortgage demand will likely be subdued this year.”
Mortgage lending is expected to pick up in 2027, with 3.3% growth, followed by a 3.5% rise in 2028. Default rates on UK mortgages are expected to edge up but remain low by longer-term standards, as increasing numbers of homeowners on fixed-rate mortgages refinance onto deals with higher rates.
Net growth in the value of UK bank lending to businesses is expected to slow to 3.5% this year, nearly halving compared with a 6.9% net rise in 2025, as global and economic headwinds impact business confidence and reduce investment demand. While falling interest rates helped boost business lending last year to the highest level since the coronavirus pandemic, the current unpredictable trading environment is expected to weigh on investment appetite in 2026.
However, should the UK’s economic outlook improve as expected from 2027, net business lending growth will regain momentum, rising to 4.5% in 2027, and 4.9% in 2028. Total bank lending is forecast to slow from 4.1% net growth in 2025 to 3.1% in 2026, then pick back up to 3.8% in 2027 and 4% in 2028.
Martina Keane, EY UK & Ireland financial services leader, said: “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. 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.”
