The mortgage market in 2024 was “considerably better than predicted”, with residential purchases up 15.6% year-on-year to 622,000.
According to UK Finance’s Household Finance review, which offers an overview of the mortgage market, first-time buyer residential purchase loans rose by 16.4% compared to the prior year to 334,000, while homemover residential purchase loans jumped 14.7% to 288,000 in the same period.
The report explained that improving mortgage pricing led to a “boost in demand”, but warned that mortgage market activity was “below the stable levels seen in 2022”.
From a gross mortgage lending perspective, the mortgage market experienced a 7.3% growth year-on-year to around £242bn.
The report stated that some of the growth was due to borrowers looking to complete before the stamp duty changes in April.
“Despite this continuing healthy double-digit growth, numbers are still not quite back to the broadly cycle-average levels seen in 2022, following the significant contraction seen through 2023.
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“Although application volumes moderated a little as the year drew to a close, they were still up around 25% on those seen at the end of 2023, pointing to continued growth in completions in the first quarter of 2025.
“Whilst improved affordability supported lending growth through 2024, it is inching back towards the very pressured levels [that] drove the sharp contraction in 2023. For now, however, demand remains relatively strong. We expect purchase lending volumes to continue to grow through the year, albeit at a slower rate than that seen last year,” it explained.
Refinancing activity lower in 2024 mortgage market
UK Finance said external remortgages were “relatively subdued”, decreasing 8.8% year-on-year to 284,000, while residential product transfers fell by 9% over the same period to 1.36 million.
Refinancing overall contracted by around 9% to 1.64 million, the report found.
The lower activity was attributed to lower volumes of fixed rate deals coming to an end last year, and the report added that it was starting to see a “modest shift” from product transfers to external remortgaging.
“In 2025, around 1.8m fixed rates are set to expire, compared with 1.4m in 2024. This will drive stronger refinancing numbers, with the continuing downward drift in interest rates likely to result in a further gradual shift towards external remortgaging,” UK Finance explained.
Arrears on the decline but possessions up by a third YOY
Mortgages in arrears contracted by around 2.3% to 104,780, while possessions jumped by around 34% year-on-year to 6,440.
“There is now firmer evidence that the peak in what looks to have been a relatively short upwards cycle in arrears has passed, and numbers are on a confirmed downward trend,” the report stated.
UK Finance said the “remarkable resilience of the mortgage customer base” was due to the “strong responsible lending standards in place for the last decade.
“This has meant that customers on variable rates, as well as those coming off of historically cheap fixed rate deals and looking to remortgage in a materially higher rate environment, have been able to absorb these increased mortgage payments within their household budgets.
“And, whilst arrears did rise, these increases were heavily concentrated in that small proportion of the overall mortgage customer base whose loans were originated before current lending standards came into force,” it said.
Unemployment is one of the main drivers of arrears, and continuing low unemployment numbers have mitigated arrears figures.
UK Finance warned that a weaker labour market throughout the year could be a “risk” to the downward trend in arrears.
On the possessions side, the report stated that the figure was 20% the average seen in the five years before 2020 and 87% lower than the high seen in 2009.
It explained that many of these relate to older mortgages that have been in arrears for some time, so falling arrears have not fed through to possessions.
“When possession becomes the only viable exit route for a customer in arrears, it is important that this happens efficiently in order to prevent unnecessary further build-up of arrears and return the greatest possible remaining equity to the customer upon sale of the property.
“We expect possessions to continue to rise modestly through 2025, as this cohort of unrecoverable arrears cases are helped to exit their debt as efficiently as possible. However, the forecast 7,000 cases would still be very low when compared with all previous cycles,” UK Finance said.
FCA lending rules disproportionately impacting FTB mortgage market in London
UK Finance said the Financial Conduct Authority’s (FCA’s) responsible lending rules, which came into force from 2014, “do not prevent high loan-to-income (LTI) lending but do indirectly act as a constraint”.
The rules mean that lenders may not have over 15% of new mortgages at over four-and-a-half times income.
The report stated that, due to higher house prices, this disproportionately impacted London as higher LTI multiples were needed to get on the property ladder.
Around 30% of all lending at an LTI ratio of more than four-and-a-half times income occurs in London, UK Finance said.
The report noted that since the FCA rules and the implementation of the flow limit, those borrowing below the four-and-a-half times income threshold were having to put down larger deposits, with some first-time buyers in London needing to put down deposits in excess of two-and-a-half times their annual household income to “make up the difference from the lower loan size available”.
First-time buyers in the region previously were putting down a deposit of around 1.9 times their annual household income.
UK Finance explained: “First-time buyers in London have, for many years, needed to rely heavily on the Bank of Mum and Dad, or other sources outside of savings from regular income, to raise the significant deposits required to access mortgage credit.
“It appears, however, that the layering of regulation, combined with house prices outstripping wage growth, has really raised the bar for those seeking to buy in the capital. The result is that, for many, without both well-above-average income and a means of raising a very substantial deposit, homeownership may now be even further out of reach.”
The report stated that outside of London, typical LTIs are lower so first-time buyers do not need to borrow above the four-and-a-half times income threshold, so the deposit-income ratio “did not change materially” post-regulation.
Change could be on the horizon, as the FCA has written to the Prime Minister saying it will simplify responsible lending and advice rules for mortgages to support growth in the sector.
Eric Leenders, UK Finance’s managing director of personal finance, said: “The final quarter of 2024 showed the resilience of UK households amid changing economic conditions, with mortgage lending showing strong growth and arrears continuing their downward trend. Consumer spending returned to growth for the first time in over two years and savings were up, with notice accounts proving popular.
“The regulatory review of mortgage lending rules, which are arguably restricting the number of people who can access mortgage lending, will be welcome news for aspiring homeowners. Reviewing these rules would help with affordability issues, not just for first-time buyers but also those looking to move further up the housing ladder.”
