Mortgage lending to fall in 2023 and 2024

By the end of this year, gross mortgage lending is set to fall by 28% to £226bn, with the country then experiencing a fall of a further five percent next year to £215bn. Meanwhile, over the course of the two years, lending for house purchases will fall by a total of 31% – dropping by 23% to £130bn in 2023, and by a further eight percent to £120bn in 2024. 

Similarly, there are set to be declines in external remortgaging and buy-to-let purchase lending. In the external remortgaging space, it’s expected to fall by 21% this year to £65bn, dropping by a further eight percent to £60bn in 2024 while the buy-to-let purchase lending is forecast to decline by 53% to £8bn in 2023, falling by a further 13% to £7bn next year.

Higher interest rates and household costs have limited access to mortgage credit this year, while affordability constraints have also dampened external remortgaging activity – although there was a growth in the internal product transfer.  

Additionally, the cost of living and interest rate pressures have pushed more customers into arrears, although the total represents only about one percent of the total outstanding mortgages in the country. 

Beyond this year, the outlook is one of continuing challenges in the market – although the main pressures around affordability should have peaked in 2023, with things beginning to look up in 2025.  

Reflecting these figures, UK Finance’s head of analytics James Tatch 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.”