Mortgage lending is predicted to fall to pre-Covid levels according to UK Finance figures released this week. Lending for property purchases has fallen by 23% in 2023, and is predicted to fall a further 8% in 2024 before a small recovery in 2025. The result is that lending will return to levels last seen in the mid-2010’s; £120-130bn, down from a peak of nearly £200bn in 2021.
The figures are drawn from the UK Finance housing and mortgage market forecasts for 2024 and 2025, which also provide projections for 2023 full year numbers.
UK Finance predicts that it could be 2025 before the combination of wage growth, softer house prices, inflation and interest rates settling enables improved affordability. In it’s own commentary UK Finance point to pressures on household finances as key challenges to lending, although interestingly suggest that “the main pressures on affordability look to be peaking now.”
It should also be pointed out that the prospect of a general election in 2024 will create uncertainty amongst home movers and, as has traditionally been the case, may put the housing market on hold for a while.
The knock on impact on transaction volumes suggests UK Finance is that they will hover around 1m in each of 2023 (1.03m), 2024 (1m) and 2025 (1.03m); a 15% fall on the average number of pre-covid transactions over 5 years from 2015 to 2019.
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.
Lucian Cook, Head of Residential Research at Savills adds that falling inflation has had a steadying impact on mortgage rates. He points to the cost of a two-year fixed rate 75% LTV mortgage stood at 5.29% 12 months ago. By the Summer that had risen to 6.34% and has since fallen back 4.94% as a result of interest rates being held.
“Even if these figures have been reported against the context of relatively muted activity in the mortgage markets, the fact that September’s 0.9% increase wasn’t reversed does suggest we are past peak pain in the UK housing market.”
Sentiment shared by the Building Societies Association and Rightmove last week suggested that there is a small increase in positive sentiment around moving from consumers and while mortgage affordability remains a key barrier to affordability, there are signs that there is a wider acceptance of higher mortgage rates. Indeed Rightmove suggested that buyer demand was up 6% after some movers paused to “wait for calmer conditions.”
Commenting on the sentiment Propertymark CEO Nathan Emerson said
“2023 has been a challenging year as the housing market has seen turbulence from both high inflation and high interest rates and there is little doubt this has translated into people taking a more cautious approach to both buying and selling alike.
“Propertymark are optimistic 2024 will bring stability, but we must remain level headed, as recovery sometimes comes with unexpected challenges along the way. It’s encouraging to see signs we are potentially at the turning point, as confidence in the housing market tends to be a strong indicator of trends within the wider economy.
“It’s vital to consider that while certain kinds of property might now be gaining a foothold in sales again, for a resilient property market we need to be reassured all formats of dwellings across the entire UK are performing well.”
