In its recent housing and mortgage market forecasts, UK Finance predicts that the UK will see a further decline in mortgage lending in 2024 but expects conditions to improve by 2025.
The report highlights a challenging 2023, with gross lending falling 28% to £226bn and lending for house purchase down 23% to £130bn.
While external remortgaging dropped 21% to £65bn, internal product transfers increased by 11% to £219bn. The buy-to-let sector was particularly hard hit, with new purchase lending decreasing by 53% to £8 bn.
Arrears increased by 30% to 105,600 cases, and possessions went up 13% to 4,400. Looking ahead, UK Finance forecasts for 2024 include a 5% decrease in gross lending to £215bn, an 8% fall in house purchase lending to £120bn, and a similar 8% reduction in both external remortgaging and internal product transfers.
Buy-to-let purchase lending is expected to contract by 13% to £7bn. The forecast also anticipates arrears to rise to 128,800 cases and possessions to increase by 16% to 5,100.
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 the increased cost-of-living, as well as house prices still at elevated levels relative to income. In the face of these challenges, borrowing for house purchase has been 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.
“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.”
Reaction
Ben Thompson, deputy CEO at Mortgage Advice Bureau:
“There is no getting away from the fact that 2023 has been a challenging year full of surprises – some welcome, some less so. However, the market has steadily improved since the summer lows, and at least we are seeing some reasonable activity as the year draws to a close. 2024 will most likely be a game of two halves.
“I expect the market to perform at a similar level to how it is now, through until the spring. It should then start to gather a bit more pace as we head towards summer. There is a tiny chance we get a small rate cut or two also towards the end of 2024 and that will further buoy the market.
“Whilst the upturn won’t be explicitly linked to interest rates, it will help, and as consumers start to see early signs of growth, they will gather confidence and the momentum in the market will pick up. First time buyers will move first, having perhaps held off buying for the last year or two and because the cost of renting has really soared.
“We may even get some help from the Chancellor next year – I hope there is some permanent change to SDLT, in particular change that makes it easier for existing homeowners to move more freely towards larger and more suitable housing, whereas for many now, the cost of SDLT is prohibitively expensive, especially now house prices have been flat for a while, and it can’t as easily be paid now simply from equity alone.
“Finally, we are now seeing real wage growth too – the economy whilst unexciting, has not despite miserable predictions fallen into a recession, and of course – we do have much more competitive mortgage rates now available. So, I quietly hope that 2024 is better than many are forecasting.”
Chris Little, chief revenue officer at finova:
“Following a rocky start to the year, the housing market settled into a far steadier groove during the latter half of 2023, and it looks like this trend is set to continue. But even as mortgage rates trail downward following consecutive pauses in the base rate, rates are still historically high. Affordability will remain a barrier to homeownership for many would-be borrowers and it will be some time before transactions recover to where they were last year.
“As we step towards the new year, some buyers will still be looking to settle down and lenders should plan ahead to ensure they are meeting borrowers’ shifting financial needs in 2024. Increasingly, firms are waking up to the value of more tailored pricing and leaning on technology to improve their speed to market. By investing in these digital tools early on, lenders will be best placed to give their clients access to the most personalized and fair rates on the market, all while protecting their own risk in the new year.”
