The mortgage market, alongside the UK housing market, experienced a strong wave of activity over the past couple of years, but the post-Covid era is expected to see a return to the ‘norm’.
The UK property market defied the odds against the backdrop of the pandemic, helped by a build-up of appetite from those who had put transactions on hold alongside the stamp duty cut incentive, and people’s new housing priorities.
This led to a huge surge in demand in the UK mortgage market, with a distinct rise in lending figures from both homebuyers and landlords.
Now that things are beginning to level off, UK Finance’s latest report predicts that overall mortgage lending will fall by 15% in 2023, which marks a return to the levels we were seeing before the pandemic hit in 2020.
The mortgage market outlook for 2023
It also forecasts that the value of mortgage lending in the house purchase mortgage market will drop by 23%, which UK Finance believes will be impacted by cost of living pressures and interest rate hikes. In the buy-to-let space, the decline could be 27%.
In terms of actual property transactions in the residential market, the outlook is a fall of 21% in 2023 – again bringing levels more in line with what we saw pre-pandemic. This will see transactions drop from 1.2 million this year to 1 million next year.
One side of the mortgage market that could see growth, though, is in the refinancing space. This is because a huge number of new loans were taken out during the highs of 2021 in particular – meaning approximately 1.8 million fixed rate deals are set to end in 2023.
UK Finance also expects internal product transfers to be more readily available to borrowers next year, particularly those in lower income brackets, meaning the mortgage market could see around £212bn of product transfers next year – compared with £197bn in 2022.
And despite the overall drop in activity and transactions, UK Finance points out that the country’s mortgage market and housing sector will remain strong, meaning there will still be plenty of competition.
Mortgage arrears are at historic lows
Unemployment remains low compared to historic figures, meaning that mortgage arrears are also at a healthy low level, along with the number of possessions taking place.
While the outlook from UK Finance is that there will be a relatively small increase in arrears in the mortgage space in the year ahead, it believes the “vast majority” of mortgage-holders will still be able to cover their mortgage payments, despite the cost of living increase.
The increase in arrears, when it does arise, is expected to be felt from early 2023 as financial pressures and interest rises begin to take their toll. UK Finance predicts that there will be 98,500 households in arrears next year – around 1% of outstanding mortgages. But this is still a low level by historic standards.
Pressures could take their toll
James Tatch, principal, 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.”
