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Mortgage market set for a subdued 2024, says UK Finance

Mortgage market set for a subdued 2024, says UK Finance
Nick Cheek
Written By:
Nick Cheek

Gross lending in the UK mortgage market is expected to fall 5% to £215bn next year, an industry trade body has predicted.

The UK Finance Mortgage Market Forecast for 2024 and 2025 said gross mortgage lending was set to reach £226bn in 2023, as borrowing was impacted by higher rates and constrained household finances. It suggested that these pressures would not ease notably in the coming year. 

In 2023, lending for house purchase fell by 23% to £130bn. UK Finance has forecast this will fall again by 8% in 2024 to £120bn. By 2025, there will be a small rise to £123bn, the organisation predicted. 

Buy-to-let purchase activity dropped by 53% last year to £8bn in 2023. This is expected to continue falling to £7bn and £6bn over the next two years. 

Refinance activity 

Residential remortgage lending fell by 21 %to £65bn this year as affordability constraints saw more borrowers opting for product transfer. As a result, product transfer lending rose from £198bn in 2022 to £219bn in 2023. 

Remortgage lending is expected to decrease to £60bn next year, while product transfer activity will also fall to £202bn. 

Across the buy-to-let mortgage market, remortgage activity is expected to remain relatively flat after falling from £38bn in 2022 to £20bn. Looking forward, UK Finance predicted this will total £19bn in 2024 and £20bn in 2025. 

Mortgage market arrears and possessions to rise 

Arrears increased from 81,200 last year to an estimated 105,600 this year and is expected to climb to 128,800 in 2024. This represents first charge loans in arrears of 2.5% or more of the outstanding balance. 

There was a rise in possessions from 3,900 in 2022 to an estimated 4,400 in 2023. UK Finance forecast this would also go up to 5,100 in 2024. 

A challenging year 

James Tatch, head of analytics at UK Finance said: “2023 was a challenging year for both prospective and existing mortgage borrowers, facing affordability pressures from higher interest rates and cost of living, and house prices still at elevated levels relative to income. In the face of these challenges, borrowing for house purchase is constrained. At the same time, most existing customers looking to refinance their loans chose to take a product transfer with their current lender, where affordability tests are not required.  

“With these pressures unlikely to ease significantly in the short term, we expect lending to remain weak in 2024, with a gradual improvement in affordability reflected in a modest increase in activity levels in 2025.”  

He added: “The challenging environment has also pushed more households into mortgage arrears. However, the rigorous affordability tests in place since 2014 are now working to ensure that the vast majority of customers can still afford their mortgage payments even with the increased pressure on their finances. Although we forecast more customers will encounter arrears next year, we expect numbers to peak well below levels seen previously.  

“As always, any customers who do find themselves in difficulty should speak to their lender at an early stage, as the industry continues to provide help to anyone struggling with a range of tailored support options.”