UK mortgage lending is forecast to fall by a further five per cent to £215bn next year before recovering in 2025, according to UK Finance.
Research by the trade body said that “the outlook for 2024 is one of continuing challenges in the mortgage market”, although the main pressures on affordability appear to be peaking at the moment.
2023 saw a 28 per cent year-on-year fall in gross lending to £226bn, as higher interest rates deterred would-be homebuyers and landlords.
Read more: Buy-to-let arrears double as landlords feel higher rates pain
Lending for house purchase fell by 23 per cent year-on-year to £130bn, while new buy-to-let purchase lending slumped by 53 per cent to £8bn.
UK Finance expects lending for house purchase to fall by a further eight per cent next year to £120bn, and buy-to-let purchase lending to fall by a further 13 per cent to £7bn.
“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,” said James Tatch, head of analytics at UK Finance.
Read more: Individual mortgage debt is lowest on record excluding pandemic
“In the face of these challenges, borrowing for house purchase has been constrained.
“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.”
Mortgage arrears rose by 30 per cent this year to 105,600, while possessions went up by 13 per cent to 4,400.
UK Finance is forecasting arrears to increase to 128,800 cases by the end of 2024 and possessions to increase to 5,100. It expects arrears to rise more modestly in 2025 to 137,800 cases, as pressure on mortgage payments begins to recede.
Read more: Buy-to-let arrears worsening at faster rate than owner-occupied mortgages
“The challenging environment has also pushed more households into mortgage arrears,” said Tatch. “However, the rigorous affordability tests in place since 2014 are now working to ensure that the vast majority of customers can still afford their mortgage payments even with the increased pressure on their finances. Although we forecast more customers will encounter arrears next year, we expect numbers to peak well below levels seen previously.”
