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UK Finance has published its housing and mortgage market forecasts for 2025 and 2026 together with projections for 2024 full year numbers.

With rate and cost pressures continuing to ease, the outlook for 2025 is for a gradual improvement in mortgage affordability, feeding into market growth. As interest rates tick down, we expect arrears to continue to fall, with tailored forbearance helping those who need it.

Forecast 2025

Year on year change compared to 2024

Gross Lending – £260 billion +11 per cent

Lending for house purchase – £148 billion +10 per cent

External remortgaging – £76 billion + 30 per cent

New buy to let purchase lending – £9 billion, down 7 per cent

Internal product transfer – £254 billion +13 per cent

Arrears – 99,000, down 5 per cent

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Key figures for 2024

Throughout 2024, lower inflation, rising real wages and gradual cuts in mortgage offer rates began to ease the affordability constraints which held back the market in 2023. This led to modest annual growth in lending for house purchases, although refinancing markets remained subdued. Arrears levels have been helped by prudent lending standards, extensive lender forbearance and low unemployment. The number of customers falling behind on their mortgages looks to have peaked early in 2024 before falling back. While the number of properties taken into possession has risen, this is largely due to historic arrears cases now working through the court system and the numbers are very low compared to historic norms. 

Year on year change compared to 2023

Gross Lending – £235 billion +4 per cent

Lending for house purchase – £135 billion +11 per cent

External remortgaging – £59 billion, down 10 per cent

New buy to let purchase lending – £10 billion +13 per cent

Internal product transfer – £224 billion, down 7 per cent

Arrears – 104,200, down 3 per cent

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James Tatch, Head of Analytics at UK Finance, says: “The mortgage market showed greater than previously expected resilience in 2024 as cost and rate pressures began to recede. Affordability constraints did impact external remortgage activity, but strong competition to retain customers meant those coming off fixed rates could find a new internal product transfer deal without needing a new affordability test.

“In 2025 we are forecasting continued steady growth in both house purchase and remortgage lending as affordability improves further. We are however forecasting a slight fall in buy-to-let lending in 2025.

“The prudent underwriting standards in place for the past decade have helped most customers who might have fallen into difficultly. Arrears look to have peaked early in 2024 before falling back, and we expect them to fall again in 2025.

“Any customer who finds themselves in financial difficulty should speak to their lender at an early stage, as the industry continues to provide a range of tailored support options to anyone who needs help.”

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Market overview: a gradual recovery after a tough year

In 2023 higher interest rates and cost-of-living pressures constrained affordability and drove a significant contraction in mortgage lending. This continued into the early months of 2024 but, from early summer, we saw the effect of real wage growth and falling mortgage offer rates translate into an increase in lending for house purchase.

Residential house purchase lending in 2024 totalled £135 billion, an increase of eleven per cent compared with 2023. Although the number of purchase loans in the year grew by four per cent, activity was still well below the average levels seen in the decade before 2023. In 2025, we expect further gradual improvements in affordability to drive another ten per cent increase in purchase lending, to £148 billion.

Remortgaging activity was relatively subdued in 2024. This was, in part, due to slightly lower numbers of customers with fixed rate mortgages reaching the end of their deal periods and looking to refinance. However, despite some cuts in offer rates and rising real wages, affordability constraints limited the options for customers looking to refinance on the open market. Remortgaging fell by ten per cent to £59 billion in 2024, whilst internal Product Transfer (PT) transactions, which are not subject to affordability tests, fell by a more modest seven per cent to £224 billion. Next year, with more fixed rate deals coming to an end, we forecast growth in refinancing. As affordability continues to ease gradually, remortgaging is expected to grow by 30 per cent to £76 billion, with PT business seeing lower growth of 13 per cent to reach £254 billion.