Gross Mortgage Lending Predictions: A Comprehensive Outlook for the UK Property Market

The UK mortgage market is currently navigating a period of transition. Following the sharp increases in interest rates in 2023, lending volumes contracted significantly. However, the market has shown resilience, with a gradual recovery underway. The Council of Mortgage Lenders (CML) forecasts that gross mortgage lending will increase by 5% in 2024, reaching approximately £299 billion. This growth is predicated on a stabilisation of interest rates and a modest improvement in consumer confidence. The average mortgage interest rate currently stands at 5.2%, down from a peak of 6.8% in November 2023.

Several key factors are influencing the market. Inflation, while still above the Bank of England’s target of 2%, is showing signs of easing. GDP growth remains sluggish, but is expected to pick up in the second half of 2024. Government policies, such as the Help to Buy scheme (which ended in October 2023), continue to have a lingering impact on the market. The availability of high loan-to-value (LTV) mortgages remains limited, making it more challenging for first-time buyers to enter the market. Approximately 60% of mortgages approved in January 2024 were for LTVs of 80% or less.

The rental market remains robust, with strong demand and limited supply driving up rents. Average rents across the UK increased by 6.2% in the year to January 2024, according to Home.co.uk. This is creating opportunities for buy-to-let investors, particularly in areas with a high concentration of students or young professionals. However, landlords are facing increasing regulatory burdens, including stricter energy efficiency standards and changes to HMO licensing requirements.

Gross mortgage lending is not evenly distributed across the UK. Regions with stronger economic growth and population increases are typically experiencing higher lending volumes. London, despite facing affordability challenges, remains a significant market, accounting for approximately 20% of all mortgage lending. However, growth in London has slowed in recent years, while other regions are experiencing faster growth.

The North West of England, particularly Manchester and Liverpool, is experiencing strong growth in mortgage lending, driven by regeneration projects and a growing economy. House prices in Manchester have increased by 8.5% in the past year, making it an attractive location for investors. The West Midlands, particularly Birmingham, is also experiencing strong growth, with house prices increasing by 7.2%. These regions offer relatively affordable housing compared to London and the South East, attracting both first-time buyers and investors.

Scotland and Wales are also experiencing moderate growth in mortgage lending, but at a slower pace than England. The South West of England, while traditionally a popular location, is facing affordability challenges due to high house prices. The East of England is experiencing a mixed picture, with some areas performing well and others lagging behind. The availability of suitable properties, particularly in areas with good transport links and local amenities, is a key factor influencing lending volumes.

The predictions for gross mortgage lending have significant implications for property investment. A gradual increase in lending volumes is likely to support house price growth, creating opportunities for capital appreciation. However, investors need to be mindful of affordability constraints and the potential for interest rate increases. The ROI on property investments will be influenced by both rental income and capital growth.

The buy-to-let market remains attractive, particularly in areas with strong rental demand. The undersupply of rental properties, particularly in cities with large student populations, is driving up rents and increasing gross yields. Purpose-built student accommodation (PBSA) is a particularly attractive investment option, offering high occupancy rates and strong rental yields. Average gross yields for PBSA currently stand at around 6-7%, compared to 4-5% for traditional buy-to-let properties.

Investors should also consider the impact of evolving regulations, such as changes to HMO licensing requirements and energy efficiency standards. These regulations can increase costs and reduce profitability. However, they also create opportunities for investors who are willing to invest in upgrading their properties to meet the new standards. Careful due diligence and professional advice are essential for making informed investment decisions.

The outlook for gross mortgage lending in 2025 and 2026 is cautiously optimistic. Most experts predict a gradual increase in lending volumes, driven by a stabilisation of interest rates and an improvement in consumer confidence. However, several potential risks could derail this recovery. A resurgence of inflation, a sharp increase in unemployment, or a further deterioration in the global economy could all lead to a contraction in lending.

The Bank of England’s monetary policy will continue to play a crucial role. Any unexpected changes in interest rates could have a significant impact on the market. Government policies, such as changes to stamp duty or tax relief for landlords, could also influence lending volumes. The availability of affordable mortgages remains a key challenge, particularly for first-time buyers.

Furthermore, geopolitical risks, such as the ongoing conflict in Ukraine and tensions in the Middle East, could create uncertainty and dampen investor sentiment. Monitoring these risks and adapting investment strategies accordingly is essential for navigating the complexities of the UK property market. The long-term impact of Brexit on the property market also remains uncertain.