UK housing defies weak growth as arrears continue to fall
11 February 2026
- Mortgage arrears forecast to fall further in 2026 and 2027
- Housing remains one of the few consistent bright spots in a subdued UK economy
- Cautious lending practices and equity buffers have supported borrower resilience
Wednesday 11th February 2026, London
The UK housing market has continued to outperform the wider economy, underpinned by a mortgage market that has absorbed higher interest rates more effectively than many expected, according to analysis from the Intermediary Mortgage Lenders Association (IMLA).
IMLA’s New Normal 2026/27 report projects that mortgage arrears will continue falling through 2026 and 2027, even as the final wave of borrowers refinance from ultra-low fixed rates taken out before the recent tightening cycle. IMLA estimates that around 0.85% of mortgage accounts were in arrears at the end of 2025, with this expected to decline to 0.80% by the end of 2026 and 0.74% by the end of 2027.
IMLA says these record lows reflects the resilience created by years of cautious lending practices and a regulatory framework that prioritised affordability and stability following the financial crisis.
“The last two years represented the toughest test the mortgage market has faced since the financial crisis,” said Kate Davies, executive director of IMLA.
“Tight post-crisis safeguards and robust affordability assessments meant borrowers were better prepared for higher rates than many anticipated. As a result, arrears are now falling even before rates have fully normalised.”
IMLA said the continued fall in mortgage arrears, even after the sharpest interest rate shock in decades, raises legitimate questions about whether parts of the mortgage framework have become overly restrictive.
“The performance of the market over the past two years shows that the system is more resilient than many may have assumed,” said Davies.
“Record-low arrears and strong borrower outcomes suggest that regulation and lending practices have been highly effective in managing risk but also that, in some areas, they may have gone further than was strictly necessary.”
The association said recent steps by the Financial Conduct Authority to clarify affordability rules, alongside lenders’ own moves to relax policy as interest rates fall, demonstrate that carefully calibrated change is both possible and safe. IMLA believes the latest arrears data indicates there is scope to go further, without undermining consumer protection or financial stability.
IMLA said this matters in particular for first-time buyers, including a lost generation of around 3.5 million households - identified in its report The Mortgage Affordability Paradox - who would historically have been expected to buy since the financial crisis, but who have remained in the Private Rented Sector due to affordability constraints and regulatory hurdles.
“The evidence now suggests we can afford to be more ambitious,” Davies added.
“With arrears low, equity levels high and affordability improving, there is a strong case for continuing to ease access to homeownership in a measured way, so that more first-time buyers can safely take their first step onto the housing ladder.”
