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UK mortgage lending surges to record high of £316bn for 2021

British house with flowers
The outlook for the housing and mortgage markets over the next two years is for a return to more stable, balanced picture following the upheavals of the last two years. Photo: Getty Images (allinvisuality via Getty Images)

2021 was a record year for mortgage lending since the financial crisis amid the stamp duty holiday and people moving away from cities as remote working became the norm, new data revealed.

UK Finance estimates gross mortgage lending overall will peak this year at £316bn ($417bn), up 31% on 2020, then moderate to £281bn in 2022.

It expects it to then increase to £313bn in 2023.

While the 2022 and 2023 gross lending figures will be reductions on the 2021 peak, notably they are higher than the 2020 and 2019 figures and so represent a return to more stable levels of activity.

The housing market is expected to soften next year, as the demand stimulus from the stamp duty holiday will no longer be a factor boosting house purchases. But other COVID-19-triggered behavioural changes, like the resurgence in homemover numbers, are likely to provide continued impetus.

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"The outlook for the housing and mortgage markets over the next two years is for a return to more stable, balanced picture following the upheavals of the last two years," James Tatch, principal, data and research at UK Finance.

Read more: UK mortgage approvals drop off as market cools

"While risks remain, both to new lending and ongoing affordability, the market looks to be emerging from the pandemic in a better place than previously anticipated, supported by a much-improved wider economic outlook.”

UK Finance expects total house purchase transactions to reach 1.5 million in 2021, about 47% higher than last year an the highest number since before the financial crisis.

Rising inflation is expected to put a squeeze on real incomes next year, which will hurt affordability as measured in income-expenditure assessments for mortgage applications.

What's more, the potential for bank rate increases over the next two years could also place pressure on affordability, although this is likely to be relatively modest.

A report from last month showed mortgage approvals for house purchase fell to 67,200 in October from 71,900 in September, following the withdrawal of the stamp duty holiday at the end of September.

The cool off is a testament to how busy the housing market has been over the past year. According to research, 2021 is set to be the UK’s busiest property market in 14 years in terms of property transactions, with the pandemic leading to a search for homes with more space.

Watch: How much money do I need to buy a house?