UK Finance has forecast that overall mortgage lending will fall 15% as it returns to pre-pandemic levels with lending for house purchases expected to fall by 23% due to cost-of-living pressures and rising interest rates placing pressure on affordability.
The trade body also expects new lending to buy-to-let landlords to fall 27% over the year.
Overall property transactions are predicted to fall by 21% next year.
However, refinancing will increase with strong numbers of fixed rate deals due to end in 2023.
UK Finance expects to see around £212bn of product transfers to take place next year, compared with an estimated £197bn in 2022.
With forecasts for unemployment showing a relatively small increase, we expect the vast majority of borrowers will be able to maintain their mortgage payments.
However, any rise in unemployment, coupled with cost of living pressures and interest rate increases, will put further pressure on some households.
UK Finance expects this pressure will begin to show in rising mortgage arrears from early 2023, increasing through the year and into 2024.
It anticipates the number of households in arrears to reach 98,500 next year, representing around 1% of outstanding mortgages. By historic standards, these increases in arrears figures remain low.
James Tatch, principal, data and research at UK Finance, said: “As we look ahead, the mortgage market is expected to enter a period of relative weakness from next year as house prices, the cost-of-living and interest rate pressures put a brake on new demand.
“The high level of activity during the 2021 Stamp Duty holiday means that a large number of borrowers are due to refinance next year, pushing up the expected value of refinancing in 2023.
“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.”
Reaction
Simon Webb, managing director of capital markets and finance at LiveMore:
“UK Finance is expecting a downturn in all areas of the mortgage market in 2023 going back to pre-pandemic levels. Considering the cost-of-living crisis, high inflation, higher interest rates and the UK being in recession, a mortgage downturn is to be expected.
“Although house purchase lending is forecast to fall, remortgaging will pick up as an estimated 1.8 million remortgages are due to expire next year. There will be a rise in product transfers as it will be is easier for some borrowers to do this than remortgage.
“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 2-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.”
John Phillips, national operations director at Just Mortgages:
”As I read through the Mortgage Market forecast for 2023 from UK Finance there was a certain amount of pessimism with a prediction of overall mortgage lending dropping by 15% and overall property transactions falling by 21% next year. However, remortgage activity is predicted to increase in 2023 and lending is expected to return to pre-covid levels says UK Finance.
“2023 will, without question be a year for brokers to be proactive and it will very much be a case of getting out what you put in.
“Mortgage brokers have dealt with far worse economic environments and come out the other side. We need to help borrowers accept that rates of 4% and 5% are the new normal and household budgets should be adjusted accordingly. Brokers are in a very privileged position to be able to help people buy or keep their homes and good products still exist and let’s remember that lenders still want to lend.
“Diversification will be the watch word for brokers in 2023 and they should look to become proactive in all lending sectors even those they have not targeted previously such as equity release, commercial and overseas mortgages. There is also an untapped income for many brokers by simply ensuring that their existing and new clients have the appropriate protection needs met.
“There is also the opportunity to ensure that borrows wider financial circumstances are looked after with a referral to a pensions or wealth expert where the , there is so much better if a fee can also be earned from a terrific referral.
“2023 can be a year of opportunity for brokers; they just need to seize it.”
