Industry data reveals a significant downturn in the UK property market, with the number of home movers reaching its lowest point since 1974, according to the UK Finance Household Review.
In 2023, only 251,000 loans were issued to home movers, marking a 26% decline from the previous year. First-time buyers also faced challenges, with their numbers falling by 22.4% to 287,000, the lowest in a decade. The overall residential purchase loans completed in 2023 totalled 538,000, reflecting a substantial 24.1% decline from 2022 and dipping below pre-pandemic levels. Gross mortgage lending saw a significant annual drop of 28.6%, amounting to £223.5bn in 2023.
The affordability pressures not only impacted home movers and first-time buyers but also influenced mortgage refinances. External remortgaging experienced an 18.5% annual decrease, while product transfer activity showed a rare 17.1% growth, the only sector to expand in 2023.
While the entire UK property market faced a downturn, the most significant declines were observed in London and the South East, attributed to constrained affordability due to soaring house prices. UK Finance’s data suggests that affordability tests conducted during mortgage issuance allowed borrowers to manage payment increases despite rising rates.
Looking ahead, the report anticipates a potential market recovery in Q1 following a decline in Q4 activity. Although affordability remains a concern, an uptick in mortgage applications hints at growth in 2024, albeit at a pace lower than historical norms.
The use of longer mortgage terms appears to have plateaued in 2023 after a rapid rise in 2022. While mortgages of 30 years or longer remained relatively stable for home movers, first-time buyers witnessed a slower increase. Notably, borrowing for over 35 years continued to rise, with nearly a fifth of first-time buyers opting for such terms by the end of the year.
UK Finance questions the efficacy of longer mortgage terms in improving affordability, noting that, compared to 2022, a borrower in 2023 would require a 50-year term for similar affordability. The report raises concerns about extending mortgage terms beyond lenders’ criteria and suggests that, even with falling rates, many potential borrowers may still struggle with affordability.
