UK Finance reports 23% drop in lending for house purchases this year
Lending for house purchases will fall by a further 8% to £120 billion next year, UK Finance has predicted, as the outlook for 2024 is one of continuing challenges in the mortgage market.
The trade body also forecasts an 8% drop in external remortgaging activity to £60 billion and a further 13% fall in buy-to-let purchase lending to £7 billion.
It added that arrears would increase to 128,800 cases by the end of 2024, while possessions would go up by 16% to 5,100 – a figure still 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.
UK Finance, in its housing and mortgage market forecasts, said that while the market will continue to face challenges in 2024, the main pressures on affordability appear to be reaching their peak. Although the easing of these challenges is expected to be gradual, a positive shift is anticipated in 2025.
Meanwhile, looking back on 2023, UK Finance said it was another challenging year for mortgage customers, as expected.
For those entering or moving within the housing market, the increased cost-of-living and interest rate hikes since the start of 2022 raised the bar for passing affordability tests. This led to a 23% decrease in lending for house purchase in 2023, amounting to £130 billion.
These factors also influenced activity in the external remortgage market, which experienced a 21% decline in 2023, amounting to £65 billion.
However, with lenders vying to retain customers amid weak new lending volumes, more customers opted for a new product transfer deal with their existing lender, exempt from affordability tests. The product transfer market saw 11% growth in 2023, reaching £219 billion.
“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,” James Tatch, head of analytics at UK Finance, commented.
“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.”
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