Mortgage lending predicted to fall next year

Mortgage lending predicted to fall next year
Christina Hoghton
Written By:
Christina Hoghton

The UK outlook is one of 'continuing challenges', according to UK Finance.

In its annual market forecast, the trade body for the banking and financial sector said that all types of lending, from house purchases to remortgaging, would fall in 2024.

This is on the back of large falls in lending volumes in 2023.

Mortgage market slowdown

UK Finance gave updated projections for lending this year, which highlighted the extent of the slowdown.

It said that gross lending would total £226bn, down 28 per cent on 2022.

Lending for house purchase is expected to have fallen by 23 per cent, remortgaging to a new lender by 21 per cent, and buy-to-let purchase lending by a huge 53 per cent to just £8bn.

Internal product transfers are expected to have risen 11 per cent to £219 billion.

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.”

Arrears up

There’s also been a rise in arrears (30 per cent) and possessions (13 per cent), due to cost of living and interest rate pressures.

Despite the rise, the total arrears figures represents only around one per cent of total outstanding mortgages in the UK.

Looking ahead

UK Finance has predicted further falls in lending next year.

It has made the following lending predictions:

We are forecasting the following for 2024:

  • Gross lending to fall by a further five per cent to £215bn
  • Lending for house purchase to fall by a further eight per cent to £120bn
  • External remortgaging activity to fall by a further eight per cent to £60bn
  • Internal product transfers to fall by eight per cent to £202bn
  • Buy-to-let purchase lending to fall by a further 13 per cent to £7bn
  • Arrears to increase to 128,800 cases by the end of 2024
  • Possessions to increase by 16 per cent to 5,100.

Tatch added: “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.”