"As we move into 2025, tailored solutions and expert advice will remain crucial for both homebuyers and landlords."
Resilience has become a frequently cited term in recent years when describing the housing and mortgage markets. While its use may feel commonplace, the significance of the message it conveys should not be overstated and resilience will remain a key theme for those navigating these markets over the course of the next 12 months.
For the intermediary market, 2024 has been a year of steady recovery, driven by adaptability and innovation, particularly within the specialist lending space. Following the affordability constraints of 2023, the early months of 2024 saw subdued activity due to elevated interest rates and cost-of-living pressures. However, as real wage growth took hold and mortgage rates began to ease, lending for house purchases increased.
Figures from UK Finance show that gross lending for 2024 rose by 4% to reach £235 billion. Within this, residential purchase lending for 2024 was £135 billion, marking an 11% increase compared to the previous year, although overall activity remained below the long-term average.
The buy-to-let market also posted a modest recovery, with new purchase lending rising by 13% to £10 billion. This growth, spurred by declining rates, highlighted a continued appetite for property investment despite ongoing regulatory and tax challenges. However, ongoing challenges are expected to temper buy-to-let activity in 2025, with new purchase lending forecast to decline by 7% to £9 billion.
As we move into 2025, tailored solutions and expert advice will remain crucial for both homebuyers and landlords. Many landlords face heightened scrutiny over energy efficiency standards, regulatory compliance, and taxation. However, that word resilience is expected to remain prevalent among those with a long-term strategy, enabling them to navigate these challenges. While the recent increase in the stamp duty surcharge has been seen by some as another blow to the buy-to-let market, many landlords are likely to adapt and persevere.
This was evident in the latest Hamptons’ Monthly Lettings Index which outlined that 10.7% of sales agreed in November went to landlords, little change from the 10.2% average seen during the year. Although this is down on the peak recorded in 2015, when landlords made up 15.7% of purchases, the level of sales agreed by landlords was around the same as recent years. In comparison, landlords accounted for 10.8% of buyers in 2019 and 10.9% in 2020.
Hamptons said many of these sales would have been agreed before the government announced the increase to the stamp duty surcharge, demonstrating that the vast majority of landlords decided to go ahead with purchases rather than pull out.
Although tax increases are never welcome for landlords, falling interest rates over the next 12 months are expected to help elevate buy-to-let returns. This will be especially apparent for more specialist property types such as those for mixed-used, multiple properties on one title, holiday lets, short-term lets and complex HMOs, prompting landlords to seek more bespoke solutions for refinancing or portfolio restructuring and engage in proactive divestment strategies. Factors which will contribute heavily to a growing reliance on specialist buy-to-let lending approaches and the value attached to the advice process.
From a residential perspective, UK Finance is more bullish in its 2025 forecasts with gross lending set to hit £260bn, an 11% uplift, with lending for house purchase accounting for £148bn, a rise of 10%. Remortgaging trends further illustrate a relatively positive outlook.
In 2024, remortgaging activity declined by 10% to £59 billion, driven by affordability constraints and fewer fixed rate deals maturing. Internal product transfers, not subject to affordability testing, saw a smaller fall of 7% to £224 billion. However, with more deals reaching maturity and affordability likely to continue easing in 2025, the trade body expects the remortgage market to rebound, growing by 30% to £76 billion. Product transfers will also expand, albeit at a slower pace, rising 13% to £254 billion.
With residential borrowers facing increasingly diverse scenarios - such as multi-income households, self-employed individuals with irregular income, and those with recent or historic credit issues - it will be intriguing to see what proportion of this growth falls within the specialist lending segment.
For intermediaries, this diversity presents an opportunity to strengthen their position as trusted advisers across the entire mortgage market. By embracing specialist lending solutions and leveraging innovation, they can support a wider range of clients in achieving their homeownership and portfolio ambitions, while driving further growth in an evolving lending landscape.
