UK Finance has released its housing and mortgage market projections for 2025 and 2026, signaling a positive turn for the mortgage landscape.
Gross lending is forecasted to reach £260 billion in 2025, marking an 11% year-on-year increase as affordability continues to improve and cost pressures ease.
Lending for house purchase is expected to jump 10% to £148 billion although new buy-to-let purchase lending is forecast to drop 7% to £9 billion
Despite significant headwinds, the mortgage market showed unexpected resilience in 2024.
MODEST GROWTH
Falling inflation, rising real wages, and declining mortgage rates gradually eased affordability constraints, leading to a modest annual growth in lending for house purchases.
Residential house purchase lending rose by 11% to £135 billion, while external remortgaging dipped 10% to £59 billion. Internal product transfers, which bypass affordability tests, saw a more modest decline of 7% to £224 billion.
Arrears peaked early in the year but ended 2024 3% lower at 104,200 cases, thanks to prudent lending standards, low unemployment, and extensive lender forbearance.
GRADUAL RECOVERY
James Tatch, Head of Analytics at UK Finance, says: “We are forecasting continued steady growth in both house purchase and remortgage lending as affordability improves.
“Prudent underwriting standards and strong lender support have kept arrears lower than expected, and these trends are likely to continue into next year.”
BUY-TO-LET HEADWINDS
The buy-to-let market saw a modest rebound in 2024, with house purchase lending rising by 13% to £10 billion. However, regulatory and tax changes, including a new 2% Stamp Duty surcharge, are poised to challenge the sector in 2025. UK Finance predicts a 7% drop in buy-to-let purchase lending to £9 billion.
ARREARS AND POSSESSION
Arrears are expected to decline by 5% in 2025, ending the year at 99,000 cases. However, entrenched financial difficulties for some borrowers may lead to an 11% rise in possessions, totaling 7,000 cases.
The increase reflects the industry’s efforts to resolve long-term arrears cases efficiently, ensuring customers can retain as much equity as possible when exiting mortgage debt.
AFFORDABILITY CONSTRAINTS
Looking further ahead to 2026, affordability constraints are expected to resurface, stabilising house purchase activity. However, remortgaging is forecasted to maintain its upward trajectory as more fixed-rate deals reach maturity, underpinning growth in the refinancing market.
Toby Leek, NAEA Propertymark President, says: “It is positive to see growing consumer confidence as we head towards the new year, thanks to stronger mortgage affordability and more a steady economic climate.
“As 2025 progresses we hope to see lenders bring even more competitive mortgage products to the market.
“Should inflation and interest rates both continue to move in a more positive direction in 2025, then the new year should be an extremely upbeat one for the housing market, especially as the UK Government aims to boost the number of new homes available.”
