UK Finance Forecasts Dip in Property Transactions
The United Kingdom's property market is set to experience a slight contraction in 2026, with UK Finance forecasting a 1% decline in property transactions. This reduction is expected to result in approximately 10,000 fewer transactions compared to 2025, bringing the total number of transactions down from 1.21 million in 2025 to an estimated 1.20 million in 2026 and 2027. The primary driver behind this anticipated downturn is identified as challenging affordability pressures, stemming from elevated mortgage payments relative to borrower income.
Affordability Challenges Impact Lending
While 2025 saw robust growth in house purchase lending, increasing by 22% to £176 billion, UK Finance projects a significant slowdown for the coming year. Lending for house purchases is forecast to grow by only 2% to £180 billion in 2026. This modest growth reflects the persistent affordability issues facing potential buyers. The buy-to-let sector also faces headwinds; new lending in this area, which rose by 11% to £11 billion in 2025, is expected to remain unchanged in 2026. This stagnation is largely due to additional taxes and regulatory measures impacting the sector.
Mortgage Market Dynamics: Remortgaging, Arrears, and Possessions
The mortgage market in 2026 will also be shaped by a significant volume of fixed-rate mortgage maturities. Approximately 1.8 million fixed-rate mortgages are scheduled to expire next year, which is expected to fuel growth in remortgaging activity. Despite the broader affordability concerns, mortgage arrears saw an improvement in 2025, falling to 92,100 cases from 104,800 in 2024. This positive trend is projected to continue, with a further 5% decline to 87,500 cases anticipated in 2026.
Conversely, mortgage possessions are expected to rise. After an estimated 8,600 possessions in 2025, UK Finance forecasts a 9% increase to 9,400 in 2026. However, these figures remain low when compared to pre-pandemic levels. James Tatch, Head of Analytics at UK Finance, commented on the situation, stating, '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.'
Outlook for the UK Property Market
The forecast from UK Finance underscores a cautious outlook for the UK property market in 2026. While some segments, like remortgaging, are set for growth, the overall volume of property transactions is expected to contract due to the ongoing challenge of affordability. The interplay of high mortgage costs, regulatory changes, and the large number of expiring fixed-rate deals will be key factors influencing market activity throughout the year.
6 Comments
Donatello
A slight transaction dip might help stabilize runaway prices, which is a good thing for many. Yet, the stagnation in buy-to-let lending could inadvertently reduce available rental options in the market.
Leonardo
Less frenzied bidding wars sounds healthier for the market.
Donatello
Needed adjustment; unsustainable high prices hurt everyone eventually.
Michelangelo
A 1% dip is hardly a crash, just a necessary correction.
Donatello
Another blow to the UK's financial stability and housing sector.
ZmeeLove
It's positive to see mortgage arrears falling, indicating some resilience in household finances. However, the forecast for increased possessions is definitely troubling and points to concentrated stress.