UK Finance has published its housing and mortgage market forecasts for 2025, together with projections for 2024’s full year numbers.
According to the data, lower inflation, rising real wages and gradual cuts in mortgage offer rates in 2024 began to ease the affordability constraints which held back the market in 2023.
This led to modest annual growth in lending for house purchases, although refinancing markets remained subdued.
UK Finance found that arrears levels have been helped by prudent lending standards, extensive lender forbearance and low unemployment.
The number of customers falling behind on their mortgages looks to have peaked early in 2024 before falling back.
While the number of properties taken into possession has risen, this was largely due to historical arrears cases now working through the court system and the numbers are very low compared to historical norms.
By the end of 2024, gross lending was expected to amount to £235bn, a 4% increase on 2023.
Lending for house purchases is forecast to total £135bn, reflecting an 11% growth compared to 2023.
External remortgaging was projected to decline to £59bn, a 10% decrease from the previous year.
New buy-to-let purchase lending was anticipated to rise to £10bn, representing a 13% increase on 2023 levels.
Internal product transfers are predicted to fall to £224bn, marking a 7% decrease compared to 2023, while the number of accounts in arrears is expected to decrease to 104,200, an annual reduction of 3%.
With rate and cost pressures continuing to ease, UK Finance said that 2025 would see a gradual improvement in mortgage affordability, feeding into market growth.
In 2025, gross lending is expected to amount to £260bn, an 11% increase on 2024.
Lending for house purchases is forecast to total £148bn, representing a 10% growth compared to 2024, while external remortgaging is projected to reach £76bn, showing a significant 30% increase from 2024 levels.
New buy-to-let purchase lending was anticipated to decline to £9bn, a 7% decrease from the previous year.
Internal product transfers were predicted to rise to £254bn, reflecting a 13% increase on 2024 figures.
The number of accounts in arrears were expected to fall to 99,000, a reduction of 5% compared to 2024.
James Tatch, head of analytics at UK Finance, said: “The mortgage market showed greater than previously expected resilience in 2024 as cost and rate pressures began to recede.
“Affordability constraints did impact external remortgage activity, but strong competition to retain customers meant those coming off fixed rates could find a new internal product transfer deal without needing a new affordability test.
“In 2025 we are forecasting continued steady growth in both house purchase and remortgage lending as affordability improves further. We are however forecasting a slight fall in buy-to-let lending in 2025.”
He added: “The prudent underwriting standards in place for the past decade have helped most customers who might have fallen into difficultly.
“Arrears look to have peaked early in 2024 before falling back, and we expect them to fall again in 2025.
“Any customer who finds themselves in financial difficulty should speak to their lender at an early stage, as the industry continues to provide a range of tailored support options to anyone who needs help.”
Reaction:
Toby Leek, president of NAEA Propertymark:
“Propertymark data from its estate agent members shows an increasing interest in property defying the usual winter lull usually seen this time of year.
“As affordability gradually improves, coupled with pressures for buyers and sellers to move in England and Northern Ireland due to the Stamp Duty changes commencing from April 2025, it’s expected that on the run-up, we will see a spike of momentum in mortgage approvals and housing market activity.
“After this, it’s likely that the pace within the market may drop; however it will prove advantageous for those serious buyers and sellers with time on their side to ensure each step of their house move is fully considered.”
Nick Hale, CEO of Movera:
“The UK Finance mortgage market forecasts for 2025-2026 provide a positive view of improving conditions across much of the housing and mortgage landscape.
“The anticipated growth in gross lending to £260 billion, driven by rising real wages and improving affordability, is an encouraging sign of market resilience after a period of uncertainty.
“The forecasted 30% increase in external remortgaging to £76bn in 2025 is particularly notable.
“As more fixed-rate deals come to an end and affordability pressures ease, this will likely provide opportunities for many borrowers to secure better deals.
“The projected growth in internal product transfers, up by 13% to £254bn, also reflects this trend and demonstrates the importance of lender adaptability in meeting borrower needs.
“The buy-to-let market remains a challenging area, with a forecasted 7% contraction in purchase lending reflecting the pressures landlords face.
“However, the recovery seen in 2024 shows that there is still strength in this sector, even as it continues to adapt to regulatory and economic changes.
“These forecasts highlight a market that is stabilising and adjusting to new realities, with improving opportunities for homeowners and landlords alike.
“It’s important for the industry to remain focused on balancing innovation with the need to provide tailored, sustainable support for all participants in the market, with experiences that are digital when they can be and personal when they need to be.”
Richard Pike, chief sales and marketing officer at Phoebus:
“Mortgage arrears levels are heading in the right direction, down three percent this year with a 5% drop forecast for next year.
“This is to a large extent driven by lender forbearance, which will have greatly helped alleviate the financial pressures that consumers have been experiencing.
“Any increase in possessions generally means increased collections activity and therefore lenders should be considering backend and servicing processes for optimal efficiency via automation to support customers and drive their business profitably into the future.”
