The UK mortgage market is bracing for another challenging year in 2024, following a tough period in 2023, according to the latest forecasts from UK Finance.
2023 witnessed heightened financial pressures for mortgage borrowers due to increased interest rates and overall living expenses. This scenario led to a significant decrease in mortgage affordability and accessibility:
- Gross Lending: There was a dramatic 28% drop in gross lending, amounting to £226 billion.
- House Purchase Lending: Lending for house purchases declined by 23%, totaling £130 billion.
- External Remortgaging and Internal Transfers: While external remortgaging fell by 21% to £65 billion, internal product transfers, which bypass affordability checks, saw an 11% rise, reaching £219 billion.
- Buy-to-Let Market: New buy-to-let purchase lending plummeted by a staggering 53%, settling at £8 billion.
- Arrears and Possessions: The number of arrears increased by 30% to 105,600, and possessions rose by 13% to 4,400 cases.
More customers found themselves in arrears due to the economic pressures, although the total number still represented only about 1% of all outstanding mortgages in the UK.
Predictions for 2024
UK Finance forecasts a further decline in the mortgage market for 2024:
- Gross Lending: Predicted to decrease by 5% to £215 billion.
- House Purchase Lending: Expected to fall by 8% to £120 billion.
- External Remortgaging and Internal Transfers: Both are projected to drop by 8%, with external remortgaging hitting £60 billion and internal transfers reducing to £202 billion.
- Buy-to-Let Lending: Anticipated to shrink by another 13% to £7 billion.
- Arrears and Possessions: Arrears might climb to 128,800 cases, and possessions are forecasted to increase by 16% to 5,100.
James Tatch, the head of analytics at UK Finance, highlighted that 2023 was especially challenging due to affordability issues arising from higher interest rates, increased living costs, and high house prices. He expects these trends to continue in 2024 but predicts a modest improvement by 2025.
Affordability Tests Toughen
The rise in living costs and interest rates since early 2022 made passing mortgage affordability tests more challenging, leading to the observed decline in lending.
Buy-to-Let Market Hard Hit
The buy-to-let sector faced additional taxation and regulatory challenges, resulting in a sharper contraction compared to the residential market.
A Potential Recovery by 2025
While 2024 is expected to see a continuation of current trends, a recovery is on the horizon for 2025. This optimism is based on potential wage growth, softer house prices, and a decrease in inflation and interest rates, which could improve overall lending activity.
Arrears and Possessions
Despite the rise in arrears, factors like rigorous affordability tests since 2014 and low unemployment levels have helped in minimising payment problems. Most mortgages in the UK are not currently in arrears.
Lenders are also offering tailored forbearance options to assist borrowers facing difficulties, ensuring that most customers can recover their positions.