The UK mortgage market experienced substantial growth in the fourth quarter of 2024, according to UK Finance’s latest Household Finance Review. Both first-time buyers and home movers saw an increase of nearly a third compared to the same period in 2023. The trend is expected to continue into early 2025, driven by favorable borrowing conditions and anticipated changes to Stamp Duty thresholds.
Growth in Mortgage Activity Amid Economic Uncertainty
Despite ongoing concerns about economic uncertainty, UK Finance reported that the mortgage market exceeded expectations in 2024. Falling interest rates throughout most of the year contributed to a 16.4% increase in first-time buyers and a 14.7% rise in home movers. The sharp growth in activity during the final quarter of 2024 is thought to have been driven by buyers seeking to finalize purchases before the planned Stamp Duty changes come into effect in April 2025.
“2024 has been a positive year for the mortgage market, and we’re optimistic that the strong growth seen in the fourth quarter will continue into 2025,” said Eric Leenders, managing director of personal finance at UK Finance. “The reduction in interest rates, along with upcoming changes to Stamp Duty, has created a favorable environment for homebuyers.”
Favorable Borrowing Conditions for Homebuyers
The strong growth in the mortgage market is largely attributed to favorable borrowing conditions. With interest rates dropping over the course of 2024, more people were able to enter the housing market, particularly first-time buyers and home movers. The expected increase in gross mortgage lending by 11% in 2025, reaching £260 billion, further reflects this positive trend.
Lending for house purchases is expected to grow by 10%, amounting to £148 billion. Additionally, the external remortgaging market is expected to see a 30% rise, reaching £76 billion. The outlook for the coming months indicates continued growth, particularly as changes to Stamp Duty encourage more people to buy homes before the new thresholds are implemented.
Refinancing Slows but Strong Remortgage Activity Expected in 2025
While refinancing activity slowed compared to the previous year, UK Finance anticipates a stronger remortgage market in 2025. Approximately 1.8 million fixed-rate mortgages will reach maturity in 2025, up from 1.4 million in 2024. This increase in maturing mortgages is expected to drive up demand for refinancing as homeowners look to secure better rates or shift to different mortgage options.
Internal product transfers, where borrowers switch to a new deal with the same lender, continue to be the most common route for refinancing. However, external remortgaging, where borrowers switch to a new lender, is expected to rise in the coming months as rates and borrowing conditions improve.
Lending Forecasts and Mortgage Arrears Decline
UK Finance predicts that gross mortgage lending in 2025 will total £260 billion, marking an 11% rise from 2024. Within this, lending for house purchases is projected to grow by 10%, while external remortgaging is set to increase by 30%. In contrast, lending for new buy-to-let properties is forecast to fall by 7%, to £9 billion.
Mortgage arrears are also expected to decrease in 2025, with an estimated 99,000 borrowers falling behind on payments. This would represent a 5% drop from 104,200 in 2024, reflecting an overall improvement in the financial stability of UK households.
UK Finance’s Call for Regulatory Review
As part of its annual review, UK Finance emphasized the importance of revising mortgage lending rules. Leenders noted that current regulations may be limiting access to mortgage lending for some potential borrowers. A review of these rules could help address affordability issues, not only for first-time buyers but also for those looking to climb further up the housing ladder.
“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,” Leenders said. “Reviewing these rules would help with affordability issues, benefiting not just first-time buyers but also those looking to move further up the housing ladder.”
The outlook for the UK mortgage market in 2025 remains positive, with strong lending activity expected to continue into the new year. As more borrowers refinance their mortgages and more homebuyers enter the market, the mortgage landscape is set for further growth. With favorable conditions and policy changes, UK Finance predicts that the housing market will remain resilient, despite any ongoing economic challenges.
To read more about the latest updates in the UK mortgage market, visit Coleman News.
