Mortgage lending to fall in 2024
UK Finance has today published its housing and mortgage market forecasts for 2024 and 2025 together with projections for 2023 full year numbers.
Key figures for 2023
In 2023, higher interest rates and household costs limited access to mortgage credit. Affordability constraints have also dampened external remortgaging activity, although there was growth in the internal product transfer market, where affordability tests are not required. Cost of living and interest rate pressures also pushed more customers into arrears, which were up on the historically low number in 2022, although the total represents only around one per cent of total outstanding mortgages in the UK.
| 2023 | Year on year change | |
| Gross Lending | £226bn | -28% |
| Lending for house purchase | £130bn | -23% |
| External remortgaging | £65bn | -21% |
| Internal product transfer | £219bn | +11% |
| New buy to let purchase lending | £8bn | -53% |
| Arrears | 105,600 | +30% |
| Possessions | 4,400 | +13% |
2024 forecast figures
The outlook for 2024 is one of continuing challenges in the mortgage market; however, the main pressures on affordability look to be peaking now. Whilst it will take some time for the pressure on household finances to recede, we expect things to begin to look up in 2025. Meanwhile, prudent lending standards and extensive lender forbearance will minimise the number of customers who struggle with their mortgage payments through this period.
We are forecasting the following for 2024:
- Gross lending to fall by a further 5% to £215bn
- Lending for house purchase to fall by a further 8% to £120bn
- External remortgaging activity to fall by a further 8%to £60bn
- Internal product transfers to fall by 8% to £202bn
- Buy-to-let purchase lending to fall by a further 13% to £7bn
- Arrears to increase to 128,800 cases by the end of 2024.
- Possessions to increase by 16% to 5,100 – this would still see possessions lower than in any year from 2019 all the way back to 1981, when the mortgage market was a little over half its current size.
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.”
Market overview: a sharp contraction following post-lockdown strength
Amidst the ongoing squeeze on household finances, 2023 was, as expected, a difficult year for mortgage customers.
For those looking to enter or move in the housing market, the higher cost-of-living and interest rate rises seen since the start of 2022 significantly raised the bar for consumers to pass affordability tests for mortgages. This led to a fall in lending for house purchase in 2023 of some 23%, to £130bn. In 2024, despite some easing in cost pressures, the level of prices and interest rates will continue to weigh heavily, and we forecast house purchase lending will fall by a more modest 8% to £120bn.
The same factors have also acted as a brake on activity in the external remortgage market, which fell by 21% in 2023 to £65bn. However, with lenders competing to retain customers against a backdrop of weak new lending volumes, more customers took out a new Product Transfer (PT) deal with their existing lender, which are not subject to affordability tests. The PT market grew by 11% in 2023 to £219bn. Next year, we anticipate that both external remortgaging and PTs will fall away slightly, following a peak in maturing two-year fixed rate deals in 2023.