UK mortgage lending predicted to fall in 2024

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UK lending for house purchases will fall by 8% in 2024, a trade association representing banks is predicting.

In a report, UK Finance said higher interest rates and household costs, will make it harder for people to access mortgage credit, which is based on affordability.

It predicts this trend will also lead to falls across all lending next year, and a higher number of repossessions.

However, the outlook for lending is expected be brighter for 2025.

UK Finance said it expects lending for house purchases in the UK will fall from £130bn in 2023 to £120bn next year.

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".

He said: "Most existing customers looking to refinance their loans chose to take a product transfer with their current lender, where affordability tests are not required."

These challenges led to some homeowners finding themselves behind in their mortgage payments, accruing arrears.

Mortgage arrears are forecast to rise from 105,600 cases by the end of 2023 with arrears of over 2.5% of the outstanding balance, to 128,800 by the end of 2024.

There were an estimated 4,400 repossessions in 2023, which UK Finance said is "an incredibly low number by historic comparisons".

It pointed out that over 99% of the 10.8 million mortgages in the UK are not now in arrears, due to strict affordability tests and low unemployment.

The report says unemployment, historically, is the main cause of mortgage arrears - which is at very low levels.

Higher bills also took their toll on the re-mortgaging market in 2023, with less homeowners able to meet the affordability requirements.

UK Finance was more upbeat about 2025, saying that whilst it would take some time for the pressure on household finances to fade, it expected to see a turnaround.

According to Sarah Thompson, managing director of financial services at Mortgage Scout, an online mortgage broker and advisory, the mortgage market has become more adept at dealing with customers who are facing financial difficulties, particularly since the pandemic.

Ms Thompson said that despite 2024 looking like it will be a challenging year, households are very good at adapting to a new lending landscape and "buttoning down the hatches."