The UK housing market has continued to outperform the wider economy, with a mortgage market that has absorbed higher interest rates more effectively than expected, according to the Intermediary Mortgage Lenders Association (IMLA).

Mortgage arrears will continue to fall through 2026 and 2027, even as the final wave of borrowers refinance from ultra-low fixed rates taken out before the recent tightening cycle, with IMLA estimating 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.

Kate Davies, executive director of IMLA, said: “The last two years represented the toughest test the mortgage market has faced since the financial crisis.

“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.”

The continued fall in mortgage arrears, even after the sharpest interest rate shock in decades, has raised questions according to IMLA, about whether parts of the mortgage framework have become overly restrictive.

Davies said: “The performance of the market over the past two years shows that the system is more resilient than many may have assumed.

“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.”