Yahoo Finance UK mortgage lending set for 'sharp contraction' in 2024
A 'sharp contraction' has been forecast for mortgage lending in 2024, as the cost of living continues to weigh on household incomes and affordability in the UK.
According to a forecast by UK Finance, despite the fact that the outlook for 2024 is one of continuing challenges in the mortgage market, the main pressures on affordability look to have peaked.
"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," said James Tatch, head of analytics at UK Finance.
For those looking to enter or move in the housing market, the higher cost-of-living and interest rate rises seen since the start of 2022 significantly raised the bar for consumers to pass affordability tests for mortgages. This led to a fall in lending for house purchase in 2023 of some 23%, to £130bn.
In 2024, despite some easing in cost pressures, the level of prices and interest rates will continue to weigh heavily, and UK Finance has forecast house purchase lending will fall by 8% to £120bn.
Buy-to-let lending is set to be disproportionately affected by the conditions, with a further fall of 13% to £7bn, the forecast adds.
Meanwhile, the number of people in arrears is forecast to increase to 128,800 cases by the end of 2024.
Read more: Property: 10 former rectories and vicarages for sale
These conditions look brighter going into 2025: by then, the combination of wage growth, softer house prices and inflation and interest rates falling back somewhat will see a gradual recovery in lending activity as affordability improves, UK finance said.
In November it was revealed that UK mortgage approvals increased for the first time in four months as the Bank of England (BoE) decided to keep interest rates steady.
The net number of agreements rose from 43,700 in September to 47,400 in October, which was the most since July, according to data from the BoE.
Net approvals for remortgaging with a different lender increased from 20,600 in September to 23,700 in October.
The effective interest rate on newly drawn mortgages picked up to 5.25% in October, from 5.01% in September.
Watch: How much money do I need to buy a house?