But the dip is expected to be temporary, with rises in lending forecast for 2027 and 2028.
According to EY Item Club’s analysis, growth in net mortgage lending is forecast to dip in 2026 to 2.5% from 3% in 2025, as limited improvements in affordability and borrowing costs subdue housing demand.
EY Item Club puts this dip down to house prices remaining high and no significant falls in mortgage rates expected below current levels.
Improving economic conditions and a strengthening jobs market, said the firm, should lead to a pick-up in housing demand, with net mortgage lending forecast to rise to 3.3% in 2027 and 3.5% in 2028 – the highest levels since 2022.
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Lending to businesses
Growth in UK bank lending to businesses is forecast to slow to 3.5% this year from 6.9% 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 pandemic, EY Item Club said the current unpredictable trading environment is expected to weigh on investment appetite in 2026, leading to more modest growth.
However, should the UK’s economic outlook improve as expected from 2027, then, like mortgage lending, net business lending growth is also expected to regain momentum, rising to 4.5% in 2027 and 4.9% in 2028.
The firm said this one-year dip in business borrowing is reflected across wider bank lending and is in line with a forecast deceleration in economic growth more generally.
The UK economy is expected to grow only marginally this year, as geopolitical uncertainty, tariff disruption, and tightening fiscal policy impact growth levels.
GDP is predicted to fall from 1.3% in 2025 to 0.9% this year, before returning to 1.3% in 2027.
Consequently, the net growth of total bank lending across mortgages, consumer credit and business borrowing is forecast to slow from 4.1% in 2025 to 3.1% in 2026.
In line with GDP, bank lending is then expected to pick back up in 2027 and 2028, recovering from the 2026 dip, and growing steadily to 3.8% and 4% respectively as the economy improves, confidence builds and businesses look to take advantage of continued healthy balance sheets.
Martina Keane, EY UK and Ireland’s 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.
“Continuing to focus on AI scaling and governance, digital transformation, cyber resilience, and climate-conscious growth will be key, and will help ensure firms are well-positioned to capitalise on positive momentum as the economy picks up and confidence strengthens.”
