UK Finance has recently released its comprehensive analysis of the housing and mortgage markets, outlining a nuanced forecast for the years 2023, 2024, and a glimpse into 2025. The report highlights pivotal figures from 2023, offers projections for 2024, and indicates a prospective shift in 2025.
Insights from 2023
Last year witnessed a slew of challenges as higher interest rates and escalating household expenses tightened the accessibility to mortgage credit. Affordability concerns dampened external remortgaging activity, although there was a surge in the internal product transfer market, bypassing affordability tests. Additionally, living costs and interest rate pressures led to an increase in customers falling into arrears, albeit accounting for a mere one percent of total outstanding mortgages in the UK.
- Year on Year Changes in 2023
- Gross lending plummeted by 28 percent to £226 billion.
- Lending for house purchases dipped by 23 percent to £130 billion.
- External remortgaging declined by 21 percent to £65 billion.
- Internal product transfers surged by 11 percent to £219 billion.
- New buy-to-let purchase lending nosedived by 53 percent to £8 billion.
- Arrears escalated by 30 percent to 105,600 cases.
- Possessions increased by 13 percent to 4,400.
Forecast for 2024
UK Finance foresees persistent challenges in the mortgage market in 2024, despite an anticipation that affordability pressures might have peaked. Although household financial strain is expected to linger, a cautiously optimistic outlook for 2025 is envisaged. The institution projects a moderate improvement in affordability that might reflect a slight uptick in activity levels by 2025. Prudent lending standards and extensive lender forbearance are projected to minimize mortgage payment struggles during this period.
- Projected Figures for 2024
- Gross lending to decline by five percent to £215 billion.
- Lending for house purchases to drop by eight percent to £120 billion.
- External remortgaging to decrease by eight percent to £60 billion.
- Internal product transfers to reduce by eight percent to £202 billion.
- Buy-to-let purchase lending to fall by 13 percent to £7 billion.
- Arrears to rise to 128,800 cases by year-end.
- Possessions to increase by 16 percent to 5,100.
James Tatch, Head of Analytics at UK Finance, acknowledged the challenges of 2023, emphasizing the constraints faced by both prospective and existing mortgage borrowers due to affordability pressures. Tatch underscored the importance of proactive communication between lenders and customers facing difficulties, assuring the provision of tailored support options.
Market Overview
The tightening grip on household finances in 2023 significantly impacted the housing market, with affordability tests for mortgages becoming more stringent. Despite a marginal ease in cost pressures projected for 2024, the continuing high price levels and interest rates are anticipated to sustain a decline in house purchase lending by eight percent to £120 billion.
The external remortgage market also felt the strain, dropping by 21 percent in 2023 to £65 billion. However, with increased competition among lenders amid weak lending volumes, more customers resorted to new Product Transfer deals with existing lenders, exempt from affordability tests. The PT market expanded by 11 percent to £219 billion in 2023, but UK Finance predicts a slight decline in both external remortgaging and PTs in 2024.
Buy-to-Let Sector Challenges
The buy-to-let (BTL) market faced compounded challenges in 2023, including cost pressures, rate increases, and regulatory hurdles. This culminated in a substantial 53 percent decline in new BTL house purchase lending. Although a smaller contraction is anticipated in 2024, the sector, especially smaller-scale landlords, might continue to grapple with ongoing challenges.
Arrears Outlook
UK Finance highlighted a rise in mortgage arrears, yet the institution predicts that the numbers are likely to peak well below previous cycles. Forecasts indicate a projected increase in arrears to 128,800 by the end of 2024, gradually rising to an estimated 137,800 cases in 2025 as the pressure on mortgage payments begins to alleviate.
The comprehensive analysis by UK Finance provides a nuanced outlook for the mortgage market, acknowledging the persisting challenges while cautiously hinting at a gradual recovery and improved affordability in the coming years.
(Note: All figures and projections are based on the analysis and forecasts provided by UK Finance.)