The UK’s mortgage market has absorbed higher interest rates more effectively than many people expected, according to the Intermediary Mortgage Lenders Association (IMLA).

Projections in IMLA’s New Normal 2026/27 report have indicated 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 Bank of England’s recent tightening cycle.

IMLA has estimated 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.

The trade body suggested that these record lows reflect 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,” executive director of IMLA, Kate Davies, commented.

“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’s report also stated that the continued fall in mortgage arrears, even after the sharpest interest rate shock in decades, raised legitimate questions about whether parts of the mortgage framework have become overly restrictive.

Davies added that the performance of the market over the past two years has shown 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,” she said.

“The evidence now suggests we can afford to be more ambitious. 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.”

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