As the market concludes a somewhat turbulent year, there is cautious optimism within the sector for 2025.
The Intermediary Mortgage Lenders Association (IMLA) has predicted that by 2025 there will be healthy lending growth, more intermediary activity and more refinancing.
In its latest report, the association expects that the share of mortgage transactions handled through intermediaries will continue its upward trend, from 87% in 2024 to 89% in 2025 and 91% in 2026.
Other key forecasts include gross mortgage lending increasing from £237.5 billion in 2024 to £275 billion in 2025, and growing further to £295 billion in 2026, with home purchase loans of £177 billion and £190 billion respectively, and transfers of £88 billion and then £94 billion. .
The increase in lending will be underpinned by lower interest rates and an increase in demand for refinancing as affordability pressures ease.
In terms of affordability, the average new borrower currently spends about 15.5% of their income on mortgage interest.
IMLA suggests this figure will fall slightly as interest rates fall, modestly improving affordability and opening up more remortgage opportunities for the 1.8 million borrowers coming to the end of a fixed rate deal in 2025.
It also expects 70% of gross mortgage loan growth to come from advances for home purchases (£177bn), while refinancing activity will recover by 13% to £88bn.
The association also predicts a 14% increase in buy-to-let (BTL) lending to £38 billion and £42 billion by 2026 (up 11%).
Meanwhile, contrary to forecasts made this time last year, delinquencies of more than 2.5% of loan balances started to decline in the third quarter of 2024.
It expects them to continue this downward trajectory from 0.98% of accounts at the end of 2024 to 0.94% at the end of 2025, with a further decline to 0.85% in 2026.
IMLA director Kate Davies says: “After a period of economic volatility, high inflation, rising borrowing costs and high uncertainty, the environment is feeling calmer and the housing and mortgage markets are coping surprisingly well with the ‘new normal’ after the ultra- low interest rates of the past decade.”
“2025 looks set to be a year of greater stability and modest but welcome growth. Brokers will undoubtedly welcome a shift in emphasis from product transfers to remortgages, and the opportunity this provides to fully assess their clients’ needs and scour the market for the most suitable solutions.”
“BTL landlords continue to face the challenge of stricter regulations and higher taxes. and will strive to run their real estate activities as efficiently as possible. Many will call on professional guidance in this regard.”
“With interest rates falling and almost a third of mortgage providers moving away from fixed deals and facing cheaper mortgages by 2025, payment arrears will continue to decline from their very low base. This is good news for both borrowers and lenders, and reflects both the effectiveness of lenders’ initial underwriting procedures and their flexibility in helping borrowers who encounter difficulties.”
“In a growing and increasingly competitive market, mortgage brokers will play an even greater role in helping borrowers find the optimal solutions for their individual needs by 2025, with the share of business going through intermediaries expected to reach the limit by 2026 of 90% will break through for the first time in the history of the market.”
Meanwhile, Ian Biggs, head of product development in Coventry, says he is “cautiously optimistic” about 2025.
Biggs says: “With base rates expected to fall, we expect mortgage rates to follow suit, creating a more favorable environment for borrowers. The size of maturities next year will also play a role in driving activity, which bodes well for the market as a whole.”
“While volatility – such as fluctuating swap rates – has been a challenge this year, the recent rate cut provides a sense of stability. The market is not expected to shrink compared to this year; there is even room for growth.”
Like IMLA, Biggs expects to see continued activity in the BTL sector, particularly in the area of refinancing existing portfolios.
However, he says the real growth area is likely to be in the public company BTL.
He says: “Faced with increasing tax burdens, many landlords are exploring the structure of limited liability companies as a tax-efficient alternative to traditional ownership.”
“This strategic shift allows landlords to limit rising costs while optimizing their portfolios. It also opens up new opportunities for expansion, allowing them to remain competitive and adapt to a changing market landscape.”
Also cautious about next year is finova sales director John Tilzey. He said: “While expectations of a significant recovery in volumes have been tempered in recent months, it is likely that transaction levels will still remain below long-term averages, with Savill’s recently predicting that UK values will grow by 4% by 2025. ”
“The recent changes in the budget have also led to revised expectations regarding interest rate cuts. Inflationary pressures, especially from national insurance increases and rising government bond yields, are likely to slow the pace of monetary easing.”
“Reducing the Stamp Duty Land Tax (SDLT) free threshold for first-time buyers from £425,000 to £300,000 could result in an additional tax burden of £6,250, which could dampen demand from this important group – and increase SDLT on second homes can only further suppress activity.”
“But it’s not all doom and gloom. We expect further interest rate cuts, limited house price growth and above-inflation wage increases – especially in the public sector – which should improve affordability for many buyers.”
“While the budget wasn’t perfect, it could have been worse, and with the worst of the tax increases hopefully behind us, confidence levels should rise in 2025. We could also see a strong push from first-time buyers to complete purchases by the April 1, 2025 deadline, resulting in a positive start to the new year.”
Elsewhere, Tony Hall, head of business development at Saffron for Intermediaries, says next year will be a “pivotal” year for the sector.
Hall explains: “With UK Finance forecasting £216 billion in new business and £195 billion in product transfers, this creates a market worth almost half a trillion pounds. In 2024, approximately 1.6 million borrowers will have moved away from fixed-term mortgage products, and it will likely be a similar story next year.”
“This will highlight the critical role of brokers, who arrange 90% of mortgages, and underline their value in navigating increasingly complex market conditions.”
While there is a lot of optimism in the air, Hall suggests there will “inevitably be bumps.”
However, he notes: “These hurdles present opportunities for brokers and lenders to demonstrate their expertise and adaptability. The increasing complexity of borrowers’ circumstances gives lenders like us the opportunity to shine and offer tailored solutions to meet a variety of needs.”
“The increased reliance on brokers underlines the critical role intermediaries play in helping customers achieve the best possible outcomes for their needs.”