"The mortgage market is expected to enter a period of relative weakness from next year as house prices, the cost-of-living and interest rate pressures put a brake on new demand."
UK Finance has today published its mortgage market forecast for 2023 – 2024, anticipating a softening in the mortgage market next year that marks a return to pre-pandemic norms.
Overall mortgage lending is expected to fall 15%, a return to pre-pandemic levels.
Broken down, purchase lending is predicted to fall 23% due to cost-of-living pressures and rising interest rates placing pressure on affordability, while new lending to buy-to-let landlords is predicted to fall by 27%.
UK Finance expects the number of property transactions to fall 21% next year (from around 1.2 million in 2022 to 1 million in 2023).
However, it expects to see strong demand for refinancing as around 1.8 million fixed rate mortgage deals are scheduled to end in 2023. The trade body predicts that around £212 billion of product transfers will take place next year, compared with an estimated £197 billion in 2022.
Arrears to rise gradually from historic lows
A small rise in unemployment, coupled with cost of living pressures and interest rate increases, will put further pressure on some households. UK Finance expects this pressure will begin to show in rising mortgage arrears from early 2023, increasing through the year and into 2024. It anticipates the number of households in arrears to reach 98,500 next year, representing around 1% of outstanding mortgages. By historic standards these increases arrears figures do remain low.
Possessions numbers rose modestly during 2022 as lenders and the courts worked through the backlog of cases that had built up due to the pandemic induced possessions moratoriums. As historic cases make their way through the courts the number of possession cases has risen and this is expected to continue slowly through the next two years as the backlog is cleared. However, as with arrears, the increase in the number of properties being repossessed remains low compared to the years prior to the Covid-19 pandemic.
James Tatch, principal of data and research at UK Finance, said: "As we look ahead, the mortgage market is expected to enter a period of relative weakness from next year as house prices, the cost-of-living and interest rate pressures put a brake on new demand.
“The high level of activity during the 2021 stamp duty holiday means that a large number of borrowers are due to refinance next year, pushing up the expected value of refinancing in 2023. The pressures being seen on household finances could mean that some customers have fewer options. However, there is wide availability of product transfers - we would encourage customers to speak to a whole of market mortgage adviser to discuss the options best suited to their circumstances.
"As always, any customers who find themselves in difficulty should speak to their lender at an early stage, as the industry stands ready to help with a range of forbearance options that can be tailored to best suit individual customers' circumstances."
