All quiet on the home front: a resettling is on the cards for new homes and mortgages 

House Prices Widen The North-South Divide
The number of new mortgages will fall by 23 per cent. (Photo by Christopher Furlong/Getty Images)

The UK economy has weathered its fair share of turbulent storms over the past few years: from a global pandemic, to war, burgeoning energy prices and now escalating cost of living pressures and interest rates; yet the housing market has remained robust throughout.

But rising costs are catching up with potential homebuyers. The next two years are likely to be quieter years for the mortgage market, with property transactions expected to fall 21 per cent in 2023 compared with this year. This dip in appetite for house buying next year follows on from a bumper harvest for the mortgage market in 2021 and into 2022, when buyers took advantage of the stamp duty holiday and shook off the shackles imposed by lockdown restrictions.

High house prices, coupled with the higher interest rate environment and rising cost of living, will bear down on affordability and reduce the demand for house purchase mortgages. We are set to see a 23 per cent drop in lending for new mortgages and a 27 per cent drop in lending for buy-to-let properties. Although these numbers seem stark, this represents a return to pre-pandemic norms following a turbulent couple of years in the mortgage market.

Elsewhere, we expect an uptick in refinancing next year as a result of the number of fixed rate deals due to end. This is also thanks to the huge volume of property transactions in in the last year. We saw over 1.4 million property transactions – the highest since 2011- and we now see many two-year fixes scheduled to end in the year ahead as a result.

However, the same affordability pressures apply and customers coming to the end of their fixed term, particularly those on lower incomes, could find themselves with more limited options to refinance. The widespread availability of internal product transfers, which don’t require affordability assessments, mean almost all borrowers will be able to find a new deal.

Another side effect of the pandemic is the way in which it exacerbated the pre-existing backlog in court cases. As courts closed and the industry implemented a moratorium on possessions, proceedings around repossessions ground to a halt. Therefore, the forecast rise in repossession cases in 2023 is reflective of the historical lows over the last few years. These figures need to be assessed in their absolute value. The number of homes forecast to be repossessed next year (7,300) is still significantly below pre-pandemic levels – the average between 2015 and 2019, which was itself a period of historically low possessions, was around 8,000 per year.

The number of arrears has halved over the past decade and, despite the cost challenges facing homeowners, those expected to struggle to pay their mortgages next year is still significantly lower than in the aftermath of the 2008 financial crisis.  

With official forecasts of unemployment only showing a relatively small increase, we expect the vast majority of borrowers to continue to be able to keep up with their mortgage payments next year. Possession is only ever a last resort, and customers who do get into trouble, or are struggling to keep up with their mortgage payment, do have multiple options.

The last few years have been tumultuous for homeowners and those looking to buy and sell. This, inevitably, meant a certain level of resettling will hopefully be on the horizon, even as rising interest rates and inflation continue to put pressure on mortgage holders.