Overall mortgage lending is expected to fall by 15% in 2023, a return to pre-pandemic levels, according to UK Finance forecasts.

Property transactions are predicted to fall by 21% next year, and a strong demand for refinancing has been predicted as around 1.8 million fixed-rate mortgage deals are scheduled to end in 2023.

UK Finance said product transfers could hit an estimated £212bn next year, compared with an estimated £197bn in 2022. An estimated 98,500 households will be in arrears next year, representing around 1% of outstanding mortgages.

Hargreaves Lansdown senior pensions and retirement analyst Helen Morrissey said: “We are going to see some big shifts in the mortgage market next year as mortgage lending plummets in the face of the cost-of-living crisis. However, if we put this into context these figures come off the back of a period of extremely buoyant market activity as buyers rushed to buy bigger properties and take advantage of the stamp duty holiday. What we are seeing is more like a return to pre-pandemic levels.

“However, it is clear the market will face real headwinds as affordability is hit by rising costs making people a bit more hesitant to take that next step on the housing ladder - UK Finance predicts property transactions to fall by more than a fifth over the course of the year. People coming off fixed-rate deals may also find their repayments on the rise prompting more belt-tightening over the coming months.

"The good news is that people on the hunt for a new deal should still find they can transfer products internally if they can’t get a deal on the open market and while the number of households in arrears is expected to get close to the 100,000 mark, this represents around 1% of outstanding mortgages and so a relatively small proportion historically. The important thing is that anyone having trouble meeting their mortgage payments engages with their lender as soon as possible to get a plan in place.”

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