New Normal means fewer house sales and less lending

Mortgage lenders serving the housing market are set for a quieter 2022 after the unprecedented levels of activity seen in 2021, according to the latest report from the Intermediary Mortgage Lenders Association. 

IMLA estimates that the total value of housing transactions reached a record of nearly £370 billion in 2021. However, IMLA’s 2022 New Normal report predicts a decrease in gross mortgage lending to £275 billion this year, with a further fall to £265 billion in 2023.

The report, which makes a series of predictions about the mortgage market over the coming year, observes that the remortgage market will be stronger in 2022, reaching £89 billion, compared to £82 billion in 2021. 

This is a result of lenders prioritising house purchase lending during last year’s stamp duty holiday, with lower predicted house purchase volumes going forward encouraging lenders to focus more heavily on the remortgage market.

More widely, whilst housing market performance will be adversely impacted by the higher interest rates prompted by the need to curb post-Covid inflation rises, the effect is likely to be tempered by several factors. 

Firstly, bond markets are continuing to signal that interest rates will remain historically low for the foreseeable future, with the yield on 50-year UK gilts at 1.0 per cent despite market expectations of short term rate rises. The decline in long term interest rates should ensure that longer term (five years or more) fixed rate mortgage rates do not rise too much. 

Secondly, the housing market continues to exhibit a shortage of supply – near record low levels – which will underpin house prices and prevent a significant fall in aggregate prices.

Kate Davies, executive director of IMLA, says: “It should come as no surprise that 2022 is set to be more subdued, especially with Covid related government support likely to come to an end. Despite this, the remortgage market is well placed to thrive in the coming year and, while interest rates may rise, mortgage rates will remain close to the all time lows of 2021.

“Looking ahead through 2022, we shall continue to press for a coherent, long-term housing strategy from the government, including the promised delivery of hundreds of thousands of new homes for a new generation of homeowners. 

"Lenders will continue to develop and engage with schemes to replace the Help to Buy scheme, which comes to an end in 2023, and thus continue to help first-time buyers achieve their dream of home ownership.”