The UK’s mortgage market is set for significant changes in the coming years, according to UK Finance’s latest report.

2023 has been marked by rising interest rates and increasing household expenses, which have significantly constrained access to mortgage credit. These economic pressures have not only dampened external remortgaging activities but also led to a noticeable increase in mortgage arrears. However, a bright spot in this scenario has been the growth in the internal product transfer market, where traditional affordability tests are not applicable.

Key Statistics of 2023:

• Gross Lending: £226 billion, a decrease of 28%.
• Lending for House Purchase: £130 billion, down by 23%.
• External Remortgaging: Fell by 21% to £65 billion.
• Internal Product Transfers: Increased by 11% to £219 billion.
• New Buy to Let Purchase Lending: Dramatically reduced by 53% to £8 billion.
• Arrears: Rose by 30%, reaching 105,600 cases.
• Possessions: Increased by 13%, totaling 4,400.

Projections Indicate Continued Difficulty

The forecast for 2024 suggests a continuation of the challenges faced in the mortgage market. UK Finance anticipates a further decline in overall lending and an increase in both arrears and possessions. However, the silver lining appears to be a gradual improvement in affordability starting in 2025.

Forecasts for 2024:

• Gross Lending: Expected to fall by 5% to £215 billion.
• House Purchase Lending: Predicted to decrease by 8% to £120 billion.
• External Remortgaging: Likely to drop by another 8% to £60 billion.
• Internal Product Transfers: Anticipated to decrease by 8% to £202 billion.
• Buy-to-Let Purchase Lending: Forecasted to fall by 13% to £7 billion.
• Arrears: Predicted to increase to 128,800 cases.
• Possessions: Expected to rise by 16% to 5,100.

Insight from UK Finance’s Head of Analytics

James Tatch, Head of Analytics at UK Finance, highlights that the challenges of higher interest rates, increased living costs, and high house prices relative to income have constrained borrowing for house purchases. He emphasises the importance of borrowers speaking to their lenders early if they find themselves in difficulty.

Market Overview

The year 2023 saw a sharp contraction in the mortgage market following the strength observed in the post-lockdown period. The combination of higher living costs and interest rate hikes significantly impacted affordability, leading to a decrease in lending for house purchases.

Buy-to-Let Market

The buy-to-let market faced not only the common challenges of increased costs and interest rates but also additional taxation and regulatory hurdles. This has led to a steeper contraction in this sector compared to the residential market.

Arrears: A Rising Concern

While the number of arrears cases rose in 2023, UK Finance anticipates that the numbers will peak well below previous levels, thanks to stringent affordability tests implemented since 2014.

Conclusion

As we look forward to 2024 and beyond, the UK’s mortgage market appears to be going through a period of significant challenge. Homeowners and potential buyers should be aware of these trends and prepare accordingly, seeking advice and assistance from their lenders if needed. The hope is that, by 2025, the market will begin to show signs of recovery as affordability improves.