In UK Finance’s Mortgage Market Forecast, the association said mortgage lending trends had returned to normal in 2022 and mirrored activity seen just before the pandemic.

But it said the number of fixed rate mortgages maturing will rise next year, which will support refinance demand. However, affordability will also impact those on lower incomes, so product transfers may be the preferred option for a number of borrowers.

Simon Webb, managing director of capital markets and finance at LiveMore, said: “If people bought in 2021 during the stamp duty holiday and paid top price for their home, in some cases it may have gone down in value.

“House price growth is now falling and many commentators are predicting a drop in prices. If borrowers took out two-year fixed rates, they will need to remortgage this year and may find they can’t pass affordability tests and their only option is a product transfer.”

UK Finance noted product transfer lending will generate £212bn in gross lending next year, a rise on this year’s £197bn. In 2024, this will amount to £193bn.

Arrears to filter through in 2023

UK Finance said strong employment levels despite the recession will allow most people to keep up with mortgage repayments, and any resulting arrears will not be seen until the latter part of 2023. 

Arrears where borrowers are behind on payments by at least 2.5% of the overall mortgage balance will increase from 80,100 this year to 98,500 in 2023. This will rise further to 110,300 in 2024.

The number of properties which are taken into possession will rise from 4,100 to 7,300 in 2023, then go up to 9,700 in 2024. UK Finance’s Household Finance Review published last week suggested that many of these would be historical cases.

James Tatch, principal, data and research at UK Finance, said the mortgage market was expected to enter a period of “relative weakness”.

He said: “The pressures being seen on household finances could mean that some customers have fewer options. However, there is wide availability of product transfers – we would encourage customers to speak to a whole of market mortgage adviser to discuss the options best suited to their circumstances.

“As always, any customers who find themselves in difficulty should speak to their lender at an early stage, as the industry stands ready to help with a range of forbearance options that can be tailored to best suit individual customers’ circumstances.”

Transaction levels to fall

The trade body has predicted that the number of residential transactions will decline by 21% to around 1 million, down from 1.3 million. This will then slip to 991,000 transactions in 2024. This will be below levels seen since 2013.

Gross mortgage lending will fall by 15% from £322bn to £275bn, then fall further to £253bn the following year. Comparatively, gross mortgage lending reached £260bn in 2017, then £269bn in 2018 and 2019, suggesting a relative return to normal levels of lending.

For those buying a home, this will fall from £171bn this year to £131bn and £122bn in 2023 and 2024 respectively. Buy-to-let lending will fall from £18bn this year to £13bn in 2023 and £11bn the year after.

Gross lending for remortgaging homeowners will rise to £89bn next year from £82bn this year, then fall back to £81bn in 2024. For buy-to-let borrowers who are remortgaging, gross lending will reach £30bn in 2023, down from £38bn this year. This will decline to £28bn in 2024.