Mortgage Lending Returning to Pre-Pandemic Levels, Falling at Least 8%

The housing market is expected to decline in 2023–24, returning to pre–pandemic figures, according to UK Finance, which released its estimate in mid-December (read the paper).

Key Takeaways:

  • It is anticipated that total mortgage lending will decrease by 15%, returning to pre-pandemic figures.
  • Mortgage lending for home purchases is expected to decline by 23% from the rising rates of interest and stress on income brought on by the growing living costs. In 2023, there is expected to be a 27% decrease in new financing for landlords who buy to rent.
  • The number of real estate transactions is expected to decline by 21% in 2013.
  • With a significant percentage of fixed-rate contracts set to expire in 2023, refinancing will rise.
  • If a debtor is having trouble making instalments, the creditor will evaluate their personal situation and give a type of deferment that is specific to their needs.

UK Finance forecasts that between 2023 and 2024, the desire for buying a house would decline as a result of the increasing rate of interest and cost-of-living constraints in the UK economy.

It sees a 21% reduction in the number of real estate deals in 2019 (from roughly 1.2 to 1 million, 2022-23), along with a 23% decrease in the value of lending to owners and a 27% decline in financing to landlords. The UK has a robust lending and property industry that will remain viable regardless of the predicted decline in business.

In addition time, 1.8 million fixed-rate mortgage contracts are expected to expire in 2023, so UK Finance expects significant demand for refinancing.

Some debtors, especially those in poorer communities, may find their choices for remortgaging on the marketplace to be more constrained due to budgetary challenges affecting debtors. Nevertheless, UK Finance believes refinancing will remain robust generally during the following year due to the extensive availability of internal product exchanges. Product transfers are anticipated to be roughly £15 billion, 2019-22.

Halifax Forecasts 8% Drop

Halifax predicts that the average cost of a property in the UK will fall by 8% in 2023, to roughly £258,000, as borrowing rates continue to rise (Full story).

According to the mortgage provider, after flattening out in mid-2022, property prices started to drop towards the end of the year, with the steady decline predicted to continue into 2023.

According to the Land Registry's and Office for National Statistics' most current UK Home Price Index, typical home costs in the UK increased 12.6% over the previous year from October, up from a 9.9% increase in September.

The significant increase in stamp duty that resulted in a drop in the UK's average home values in October 2021 was a factor responsible for the rise in the annual per cent difference.

Steady price increases caused a new peak in the average UK house price in 2022. The going value of a property in the UK in October 2022 was around £296k. This was an increase of about £33k from the same time in 2017.

Over the course of 2022, the average cost of housing in the UK increased by 13.2%, while costs increased by 8.5% in Scotland, 11.8% in Wales, and 10.7% in Northern Ireland.

With a new high of about £170k in October 2022, England's Northern regions kept their status as the area with the lowest average home value in the country.

England's North saw the highest yearly price inflation during October while having the lowest annual home inflationary pressures in September 2022. The average price of a home in the North East increased by 17.3% from a 6.7% annual per cent change in September 2022 to October 2022.

Between September and October 2022, England's North saw a 1.9% increase in median property values which was the most of any region. In contrast, over the same period in 2021, the average property price in the Northern area decreased sharply by 7.3%.

Rising Arrears After Historic Lows

UK Finance anticipates the vast bulk of homeowners will be able to continue making their monthly repayments because jobless estimates indicate a relatively minimal rise.

Nevertheless, any increase in unemployment, combined with living costs constraints and rate of interest rises, would put additional stress on certain households. UK Finance anticipates that starting in early 2023, rising mortgage arrears will start to become evident, continuing throughout the year and into 2024.

Next year, UK Finance projects that 98,500 households—or around 1% of all mortgages still outstanding—will be in arrears. These rising arrears numbers do continue to be modest by historical standards.

The quantity of possession cases has increased as old cases work their path through the courts, and UK Finance thinks this trend will gradually persist over the course of the next two years as the bottleneck is reduced. The number of homes being seized has increased, although only little relative to the period before the Covid-19 outbreak, as previously mentioned regarding arrears.

UK Finance does not anticipate a significant increase in the number of possessions due to either Covid-19 or the present financial challenges confronting households until far into 2024, though, given arrears are still at a low level and there haven't been many cases reported of arrears reported to date.