Bank mortgage lending growth is set to peak this year before unemployment and higher rates take hold
UK bank mortgage lending growth is forecast to slow sharply from 2027. It is set to retreat from next year as unemployment climbs, income growth stalls, and interest rates stay higher than many borrowers had hoped.
That is the central finding of the EY UK Bank Lending Outlook, published on 1 October 2026. The report tracks lending by UK-regulated deposit-taking institutions. For UK mortgage brokers, the figures point to a more challenging pipeline environment from next year.
Bank mortgage lending growth is forecast to rise from 3.0% in 2025 to 3.3% this year. It is the only major category expected to accelerate in 2026, before falling back to 2.2% in both 2027 and 2028.
Broader bank lending across all categories is forecast to slow from 3.6% in 2025 to a three-year low of 2.2% in 2027. Geopolitical tensions in the Middle East, higher energy costs, and weakening economic activity are all weighing on demand.
How is the mortgage market holding up in 2026?
The brief upswing in bank mortgage lending this year traces directly to rate easing in the second half of 2025. But that tailwind is fading.
Write-off rates on bank mortgage debt are forecast to edge up only marginally, from 0.008% in 2025 to 0.011% in 2027. That suggests the existing book is not deteriorating rapidly.
For brokers advising clients on timing a purchase or remortgage, the implication is a window that may be narrowing faster than it appears. Analysis of what gilt yields hitting a 28-year high means for mortgage borrowers underlines the cost pressures already feeding through into fixed-rate pricing.
Will a recession derail the housing market?
The EY forecast carries a significant caveat. If conflict in the Middle East escalates and the Strait of Hormuz remains blocked into early 2027, the UK economy could tip into recession.
Under that adverse scenario, overall bank lending growth could fall to as low as -0.4% in 2028. The growing recession risks presenting fresh challenges for the UK housing market have already added complexity to purchase decisions for brokers and their clients.
Martina Keane, EY UK & Ireland financial services leader, acknowledged the pressure but urged perspective.
"Ongoing geopolitical tensions continue to create uncertainty for businesses in the UK," she said. "While the bank lending forecast reflects the impact of global economic challenges, it is important to keep this in perspective, with growth still set to continue across all major categories."
Corporate and consumer credit face steeper declines
Corporate borrowing growth is expected to drop by more than half, from 5.3% in 2025 to 2.1% this year. A partial recovery to 2.8% in 2027 is forecast as spending on artificial intelligence and digital infrastructure picks up.
Consumer credit faces more immediate pressure. Growth is forecast to fall from 3.4% in 2025 to 1.9% this year, slowing further to 0.4% in 2027.
Rising unemployment, cautious household behaviour, and tighter lender selectivity are all contributing. For brokers, that squeeze has a direct read-across. Clients who might have borrowed against credit to fund deposits are likely to find that route more restricted.
The industry calls for Budget action as house price growth halves reflect how broadly affordability pressures are now being felt.
Dan Cooper, EY UK & Ireland head of banking and capital markets, stopped short of signalling a credit crisis.
"Write-off rates are expected to remain low and stable across all categories," he said, "suggesting slower demand rather than a deterioration in credit quality."
What does slowing bank mortgage lending growth mean for UK brokers?
The EY data covers bank lenders only. It suggests current bank mortgage lending growth is close to a near-term peak.
For brokers, that points to a leaner pipeline in 2027, driven by demand-side pressure rather than tightening credit standards. Clients facing redundancy risk or constrained income growth will need careful guidance on timing and product selection.
Those who act decisively in 2026, before unemployment rises further and affordability tightens, may find themselves better positioned than those who wait.
