Mortgage lending predicted to fall by 8% in 2024

Lending for house purchases is predicted to fall by 8% in 2024, according to a report by UK Finance.

Lending for house purchases is ex[expected to fall from £130 billion this year to £120 billion in 2024. UK Finance says higher interest rates and household costs will make it harder for people to access mortgage credit.

In 2023 higher interest rates and household costs limited access to mortgage credit. Affordability constraints have also dampened external remortgaging activity, although there was growth in the internal product transfer market, where affordability tests are not required. Cost of living and interest rate pressures also pushed more customers into arrears, which were up on the historically low number in 2022, although the total represents only around one per cent of total outstanding mortgages in the UK.

The outlook for 2024 is one of continuing challenges in the mortgage market; however, the main pressures on affordability look to be peaking now.  Whilst it will take some time for the pressure on household finances to recede, we expect things to begin to look up in 2025.  Meanwhile, prudent lending standards and extensive lender forbearance will minimise the number of customers who struggle with their mortgage payments through this period.

James Tatch, Head of Analytics at UK Finance, said “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. 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.”

“The challenging environment has also pushed more households into mortgage arrears. 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.”