BrokerDec 13 2021

Mortgage lending to fall by £35bn in 2022

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Mortgage lending to fall by £35bn in 2022
Photographer: Chris Ratcliffe/Bloomberg

Gross mortgage lending is set to dip by £35bn next year, reducing from its peak of £316bn in 2021 as the housing market returns to “stable levels”.

Up 31 per cent this year, gross lending is set to fall by 11 per cent in 2022 to £281bn, before climbing back up to £313bn in 2023, according to UK Finance forecasts published today (December 13).

During 2021 the number of house purchase transactions hit their highest level since before the global financial crisis, reaching 1.5m - up 47 per cent on 2020.

And despite bearing the weight of years-long tax hikes and regulatory changes, buy-to-let saw one of the biggest increases this year, with purchase activity up 83 per cent to £18bn.

Following what UK Finance has dubbed “the 2021 peak”, gross lending is expected to fall over the next two years.

Although they will still be higher than 2020 and 2019 figures, representing “a return to more stable levels of activity”, the trade body said.

David Hollingworth, associate director of communications at broker L&C Mortgages, told FTAdviser he wasn’t surprised one of the key drivers has been the purchase market.

“The pandemic put a sharp focus on our homes and where we live and that effect on demand was only amplified by the stamp duty holiday which led to the peaks in activity, especially when the March deadline hit,” he explained.

But despite UK Finance anticipating this to moderate over the next two years, Hollingworth said supply of property was “seemingly the current blocker” for any major market changes as demand “holds firm”.

He continued: “With interest rate rises potentially on the horizon it will be interesting to see if confidence is dented, especially with the rise in other living costs.

“The fundamentals look set to remain strong into next year and a competitive mortgage market will offer attractive options to those purchasing and remortgaging.”

Mark Harris, chief executive of broker SPF Private Clients, said the pick-up in lending again come 2023 will be - at least in part - down to re-mortgaging activity, pointing to a quieter 2022 for house purchases.

“Many people taking out cheap fixes in the past year will find those maturing and will be looking for another deal, at a time when interest rates could well be higher than they are now,” said Harris.

Down slightly (6 per cent) on last year at £62bn in 2021, homeowner remortgaging activity is set to pick up over the next two years according to UK Finance, reaching £69bn in 2022 and a significantly greater £93bn in 2023.

“It is inevitable that the market will calm down next year,” said Hollingworth. “Indeed, we have already started to see this. Many people brought forward purchases in order to take advantage of the stamp duty holiday. Now that has passed, there is less of a frenzy, although there is still plenty of demand and while interest rates remain low, that will continue to fuel the market.”

In October, Hollingworth warned mortgage brokers on FTAdviser’s podcast they could not rest on their laurels following the stamp duty holiday.

A month later, it was revealed that property transactions fell by nearly half (48.4 per cent) in October, signalling the lowest house sales that month has seen in nine years.

Carl Shave, director at Just Mortgage Brokers, said: “We will likely now see an adjustment in the market for those that brought their purchase plans forward with a tail off in house purchase transaction for 2022.  

“However the mortgage market looks to remain healthy for 2022 with the anticipation of continued house purchase activity combined with an expected high volume of borrowers coming to the end of their mortgage deals in the next 12 months.”

Aaron Strutt, product and communications director at Trinity Financial, agreed that while this year has been busy, 2022  “probably won't be quite crazy”.

“The stamp duty holiday sent the market wild, especially with the availability of super cheap rates, he explained.

“There is certainly more interest in the buy-to-let sector and that's reflected in the lending figures.

“Many brokers will expect to have another busy year, but it probably won't be quite as crazy as this one unless the government brings in another stamp duty holiday.”