Mortgage lending expected to grow by 3.3%

EY has forecast that mortgage lending will grow 3.3% before slowing to 2.2% in 2027 as economic pressures and uncertainty are reducing borrowing demand.

Mortgage lending remains comparatively resilient, after interest rates and inflation fell back last year, with growth expected to rise marginally from 3.0% in 2025 to 3.3% in 2026. However, rising unemployment, slower income growth and interest rates remaining higher for longer are then forecast to reduce growth to 2.2% in 2027.

Consumer credit growth is forecast to fall from 3.4% in 2025 to 1.9% this year and 0.4% in 2027, as banks exercise greater caution amid affordability pressures

UK unsecured consumer credit growth, which has been rising since 2022 as households borrowed to meet higher living costs, is now forecast to moderate to just 1.9% in 2026, down from 3.4% in 2025. Rising unemployment and slower income growth are expected to make households more cautious about taking on debt, while lenders are also likely to become more selective as affordability pressures increase. This subdued credit demand is expected to persist, with consumer credit growth forecast to slow further to 0.4% in 2027, before rising slightly to 0.7% in 2028.

Dan Cooper, EY UK & Ireland Head of Banking and Capital Markets, said “The moderation in lending activity is broad-based, as households and businesses become more cautious in response to economic uncertainty and higher costs. Business investment, housing activity and consumer borrowing are all anticipated to remain subdued in the near term. Importantly though, write-off rates are expected to remain low and stable across all categories, suggesting slower demand rather than a deterioration in credit quality.

“The UK’s banks enter this period from a position of strength, having built robust capital positions, greater resilience, and disciplined risk management. This means they are well-placed to support customers while continuing to invest for the future, so they are ready to meet demand as the economy stabilises and borrowing appetite returns.”