Gross mortgage lending is predicted to fall by a further 5% to £215bn in 2024, new forecasts from UK Finance have indicated.

The banking body has also estimated that lending for house purchase will decline by 8% to £120bn, while external remortgaging activity is to also fall by a further 8% to £60bn.

In 2023, higher interest rates and household costs limited access to mortgage credit, while affordability constraints have also dampened external remortgaging activity.

Cost of living and interest rate pressures also pushed more customers into arrears, which were up on the historically low number in 2022, although UK Finance highlighted that the total represents only around 1% of total outstanding mortgages in the UK.

As a result, however, the banking body has warned that the number of mortgages arrears is to increase to 128,800 cases by the end of 2024, while possessions will increase by 16% to 5,100.

Head of analytics at UK Finance, James Tatch, said that 2023 was “a challenging year for both prospective and existing mortgage borrowers”, facing affordability pressures from higher interest rates and the increased cost of living, as well as house prices still at “elevated levels relative to income”.

“In the face of these challenges, borrowing for house purchase has been constrained,” Tatch commented. “At the same time most existing customers looking to refinance their loans chose to take a product transfer with their current lender, where affordability tests are not required.

“With these pressures unlikely to ease significantly in the short-term, we expect lending to remain weak in 2024, with a gradual improvement in affordability reflected in a modest increase in activity levels in 2025.”

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