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Mortgage lending is expected to hit £310bn this year, topping last year’s total, driven by high levels of remortgaging and a record year in the buy-to-let market, according to Intermediary Mortgage Lenders Association.

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Remortgages account for more than a third of gross lending, while landlord purchases are forecast to come in at £56bn, says the broker’s body in its ‘New normal – prospects for 2023 and 2024’ report. Last year it estimated overall gross mortgage lending at £304bn.

The study says “despite geopolitical and economic uncertainty” in an environment that has seen the base rate rise nine times over the last 12 months “the mortgage market has remained resilient throughout 2022”.

It adds: “Inflation will be a key factor determining the UK mortgage market’s prospects over the next two years.

“If consumer price index inflation remains above the Bank of England’s target in 2024, the Bank will remain under pressure to maintain or adjust the base rate in order to control inflation.”

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The report forecasts that higher interest rates will result in gross mortgage lending falling to £265bn in 2023 and £250bn in 2024. BTL lending will also fall to £47bn in 2023 “as a tougher economy weighs on the market”.

However, the study points out that in some areas the effects of the cost-of-living crisis on homeowners may not be as severe as expected.

It predicts that the number of households in negative equity will touch 16,000 by the fourth quarter of 2024, with an average negative figure of £4,300 per household, “despite many experts drawing comparisons between the current situation and the housing downturn of the 1990s, when up to 1.8 million households were in negative equity.

The report adds: “This is due to a lower proportion of lending at high loan-to-value ratios, rapid house price rises since the Covid-19 pandemic, and a greater uptake of capital repayment mortgages, meaning more borrowers have paid down their mortgage balance.

“These factors, combined with more rigorous lending criteria and enhanced lender forbearance, mean that actual possessions figures are expected to be less than half those reported in 2009.”

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The survey adds that the “lion’s share of mortgage business” in 2022 was conducted through intermediaries, with their share of distribution rising from 80% to 84%, “reflecting the advantages of lenders using these channels – namely lower fixed costs and the flexibility to control volumes”. Imla forecasts this share of the market will grow to 90% by 2024.

Imla executive director Kate Davies says: “After two years of global economic turmoil caused by Covid-19, 2022 was widely expected to be a year of recovery and a return to stability.

“However, the new normal appears to be uncertainty, with lockdowns in China continuing to impact supply chains, Russia’s invasion of Ukraine triggering rapid rises in energy prices, and political upheaval in the UK directly affecting mortgage rates.

“Yet, even in this context the mortgage market has remained resilient, with gross lending likely to reach £310bn by the end of 2022.

“Our report also shows that intermediaries are continuing to play a particularly important role in the sector, helping borrowers to find the mortgages they need as they try to move onto or up the ladder, or remortgage at a time when rates are higher than in recent years.

“Looking ahead, there will continue to be significant challenges facing the mortgage sector and wider economy.

“We expect persistent inflation and the Bank of England response to weigh on the market, which will have an impact on lending as buyers choose to hold off on moving home or investing in a buy-to-let property.

“However, where buyers are looking to secure their next mortgage, we have no doubt that the intermediary market will continue to support consumers and that a growing number of people will be turning to brokers to help them navigate the mortgage journey in these uncertain times.”

By Roger Baird

Source: Mortgage Finance Gazette

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