The Intermediary Mortgage Lenders Association (IMLA) has published its annual ‘New Normal’ report, forecasting the mortgage and housing markets for the next two years.
The report predicts a contraction in gross lending to £205bn in 2024, followed by a recovery to £210bn in 2025. This follows a decrease to £225.5bn in 2023, a 28% reduction from the previous year, largely attributed to higher mortgage rates.
The downturn in 2023 included a 30% reduction in house purchase lending to £135bn and a 24% decrease in remortgaging to £82bn. The report suggests that the primary factor for this downturn was the increase in mortgage rates.
In terms of mortgage affordability, the report revisits the impact of the shift from low to higher mortgage rates in 2022.
For home-movers, mortgage interest payments consumed 12.7% of gross income on average in the year to September 2023, still below the long-run average of 13.8%.
However, for first-time buyers, the figure was 16.0%, above the long-run average of 14.8%, reflecting the challenges faced by first-time buyers as house price inflation has outpaced income growth.
The report also forecasts a continued increase in the intermediary market share, from 84% last year to 89% in 2024 and over 90% in 2025. However, the rise in market share is not expected to prevent a 6% fall in the value of lending arranged by intermediaries in 2024, with a projected 4% rise in broker business volumes in 2025.
Kate Davies, executive director of IMLA, said: “After the shocks that have buffeted the global economy in recent years – lockdowns in 2020 and 2021 and the Russian invasion of Ukraine in 2022 – 2023 saw a welcome respite and a partial return to normality as the disruption from supply chain and war-related dislocation eased considerably.
“However, our ‘new normal’ is a higher interest rate environment than the one to which we became perhaps too accustomed post-financial crisis.
“The increase in Base Rate from 0.1% to 5.25% in just over two years has inevitably subdued the mortgage sector to a degree.
“Yet the housing market has proved remarkably resilient and mortgage affordability is comfortable for the typical borrower – although longer mortgage terms are no doubt a factor.
“In these more challenging times, intermediaries have played a key role in directing borrowers to the most appropriate financial solutions for their needs, and their advice will continue to be vital for the borrowing community in 2024 and beyond.”
