Easing affordability pressures and falling arrears to drive recovery
UK Finance has released its latest housing and mortgage market forecasts, projecting continued growth in 2025, supported by easing affordability pressures and falling interest rates.
The forecasts also include updated figures for 2024, which saw modest recovery following a challenging 2023.
The outlook for 2025 suggests improving affordability as cost pressures diminish, driving growth across most mortgage sectors. UK Finance predicts gross mortgage lending will reach £260 billion in 2025, an 11% increase from 2024.
Lending for house purchases is forecast to rise by 10% to £148 billion, while external remortgaging is expected to grow by 30%, reaching £76 billion. However, lending for new buy-to-let purchases is anticipated to decline by 7% to £9 billion. Arrears are projected to fall by 5%, with around 99,000 mortgage holders expected to be behind on payments, down from 104,200 in 2024.
Meanwhile, UK Finance’s data for 2024 highlights a market beginning to stabilise, aided by lower inflation, rising real wages, and gradual cuts in mortgage offer rates. Gross lending for the year is estimated at £235 billion, a 4% increase from 2023.
House purchase lending grew by 11% to £135 billion, but external remortgaging declined by 10% to £59 billion as affordability constraints continued to weigh on activity. Buy-to-let purchase lending rose by 13% to £10 billion.
Arrears peaked early in 2024 before starting to decline, supported by prudent underwriting standards, extensive lender forbearance, and low unemployment. However, repossessions have increased, reflecting historic arrears cases moving through the courts.
James Tatch, head of analytics at UK Finance, described the 2024 mortgage market as “more resilient than expected” as economic pressures eased.
“Affordability constraints impacted external remortgage activity, but strong competition to retain customers allowed many to secure internal product transfer deals without needing new affordability checks,” Tatch said.
Looking ahead, Tatch predicted “steady growth” in both house purchase and remortgage lending in 2025, supported by improving affordability. However, he noted a likely decline in buy-to-let lending.
Tatch also highlighted the industry’s prudent lending practices, which have helped mitigate arrears. “Arrears look to have peaked early in 2024 before falling back, and we expect them to fall again in 2025,” he said. “Any customer facing financial difficulty should speak to their lender early, as the industry continues to provide tailored support.”
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