'Bumper year' for mortgage lending as 1.5 million homes sold

Mortgage lending has soared in 2021, driven by the cut in stamp duty and people moving away from cities as remote working became the norm.

UK Finance estimates that the total number of house purchase transactions (including cash purchases) will reach 1.5 million in 2021. That’s a 47% increase from 2020 and the highest level since before the financial crisis.

The banking and financial services trade association predicts that gross lending overall will peak at £316bn, up 31% on 2020, before falling back to £281bn in 2022 and then rising again in 2023 to reach £313bn.

House purchases are the main driver of lending in 2021 (£200bn, up 53% on 2020), whereas homeowner remortgaging activity will be slightly down on 2020 at £62bn.

Although the stamp duty holiday will no longer be a factor boosting house purchases, other behavioural changes triggered by Covid-19 and the resurgence in home moving following a decade of stagnation are likely to provide continued impetus in 2022.

The “race for space” — buyers seeking larger homes with a spare room or a garden to better suit their changed lifestyle — remains a significant driver of home moving. The lack of a daily commute for many existing homeowners who were previously constrained by relatively low levels of equity with which to climb the housing ladder in the city where they work means they can now consider different locations where their existing equity will go further, UK Finance explained.

Meanwhile, remortgaging activity is anticipated to pick up modestly in 2022 and accelerate somewhat in 2023 as higher volumes of fixed rate deals, including five-year deals taken out in 2017, are set to end and the loans become eligible for refinancing.

In general, the outlook for both lending and ongoing mortgage affordability is much improved compared to forecasts made a year ago, UK Finance said.

However, the rising cost of living is likely to put a squeeze on real incomes in 2022 and this would impact affordability as measured in income-expenditure assessments for mortgage applications. The potential for Bank Rate increases over the next two years could also put pressure on affordability, although this is likely to be relatively modest.

Around three-quarters of existing mortgages are on fixed rates, so there would be no immediate impact on payments from interest rate rises.

Elsewhere, the report said that buy-to-let activity has followed a similar path to the residential sector, with purchase activity growing to £18bn, up 83% on 2020.

It added that while the 2022 and 2023 gross lending figures will be reductions on the 2021 peak, they are higher than the 2020 and 2019 figures and represent a return to more stable levels of activity.

“2021 has been a bumper year for mortgage lending amid the stamp duty holiday and homeworkers moving from cities,” said James Tatch, principal of data and research at UK Finance.

“The outlook for the housing and mortgage markets over the next two years is for a return to more stable, balanced picture following the upheavals of the last two years.

“While risks remain, both to new lending and ongoing affordability, the market looks to be emerging from the pandemic in a better place than previously anticipated, supported by a much-improved wider economic outlook.”