Lending projected to grow 16% as affordability improves
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The UK mortgage market is poised for growth in 2025, with lending activity expected to rebound amid improving economic conditions and stabilising interest rates.
According to the latest report from the Intermediary Mortgage Lenders Association (IMLA), gross mortgage lending is projected to increase by 16% to £275 billion, up from £237.5 billion in 2024. This growth is attributed to easing affordability pressures and greater demand for remortgaging as rates settle between 3% and 4%.
IMLA’s report, The New ‘Normal’ – Prospects for 2025 and 2026, predicts that intermediaries will handle an even greater share of mortgage business, rising from 87% in 2024 to 89% in 2025, and reaching 91% by 2026.
“In a growing and increasingly competitive market, in 2025 mortgage advisers will play an even greater role in helping borrowers find the optimal solutions for their individual needs,” executive director Kate Davies (pictured) said.
Remortgaging activity is set to grow by 13%, reaching £88 billion in 2025, driven by falling interest rates and an expected reduction in the proportion of income spent on mortgage interest. Currently, the average borrower allocates 15.5% of their income to interest payments, a figure forecast to decline as affordability improves. Meanwhile, lending for house purchases is expected to rise to £177 billion in 2025 and £190 billion in 2026.
The buy-to-let sector is also forecast to expand, with lending increasing by 14% to £38 billion in 2025 and £42 billion the following year. This growth comes despite challenges such as higher stamp duty for additional properties and potential impacts of the Renters’ Reform Bill. Rising rents, fuelled by a supply-demand imbalance in the private rental market, are expected to support the sector, though some landlords may exit due to regulatory pressures.
IMLA noted that arrears - loan balances overdue by more than 2.5% - began to decline in late 2024 and are expected to continue falling. Projections suggest arrears will decrease from 0.98% at the end of 2024 to 0.94% in 2025, and further to 0.85% in 2026. This downward trend reflects both improved affordability and the flexibility of lenders in supporting borrowers facing financial difficulties.
Davies described the outlook as one of stability following a period of economic volatility: “After a period of economic volatility, high inflation, rising borrowing costs and great uncertainty, the environment feels rather more settled… 2025 looks to be a year of greater stability and modest but welcome growth.”
With almost a third of remortgagers facing lower-cost mortgages as fixed-rate deals end in 2025, the report paints a cautiously optimistic picture of the year ahead.
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