Mortgage arrears are set to fall to near record lows over the next two years even as borrowers continue rolling off ultra-low fixed rates, according to the Intermediary Mortgage Lenders Association (IMLA).
In its New Normal 2026/27 report, IMLA forecasts arrears declining from 0.85% of mortgage accounts at the end of 2025 to 0.80% in 2026 and 0.74% in 2027.
The figures suggest the mainstream mortgage market has absorbed the sharpest interest rate tightening cycle in decades far more effectively than many predicted – a signal that borrower resilience remains strong despite higher funding costs.
IMLA credits post-financial crisis underwriting reforms and strict affordability testing for insulating borrowers from payment shock.
“The last two years represented the toughest test the mortgage market has faced since the financial crisis.”
Kate Davies (min picture, inset), executive director of IMLA, says: “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.”
RISK CONTAINED
For the specialist and bridging market, the data adds weight to arguments that risk in UK residential lending has been well contained and that regulatory caution may now be overshooting.
Davies adds: “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.
BE MORE AMBITIOUS
And she says: “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.”
IMLA estimates 3.5 million households remain locked out of ownership since the financial crisis — a potential pipeline of demand that could ripple through residential, specialist and bridging markets alike if policy loosens in a controlled way.
