Mortgage lending to remain weak in 2024

Mortgage lenders are expecting a quieter year for home loans in 2024.

Forecasts from banking trade body UK Finance suggest lending for house purchase will fall by a further 8% in 2024 £120bn, having already dropped this year.

Arrears and repossessions are also expected to increase but will remain relatively low - which could mean more forced sales for agents to cope with.

UK Finance said the outlook for 2024 is one of continuing challenges in the mortgage market; however, it said the main pressures on affordability look to be peaking now. 

It said: “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.”

Commenting on the outlook, Laura Suter, director of personal finance at AJ Bell, said higher interest rates will cause pain for homeowners for years to come, adding: “The outlook for the housing market is pretty bleak for next year: subdued transactions, lower lending and a large jump in arrears as people struggle to repay their debts.

"There isn’t much optimism that things will dramatically improve in 2025, even as interest rates hopefully start to drop, with arrears still climbing as people face the reality of a higher interest rate environment."