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Our predictions for the UK mortgages market this tax year

What’s ahead for the 2024/25 tax year and what are the key trends to look out for?

A boost to consumer confidence, a rise in residential mortgage lending, increased appetite for remortgaging and a ‘new normal’ for interest rates. Here we share insight from our broker partners and our Business Development Managers on the outlook for the next 12 months, what to expect and our predictions on borrower trends for the year ahead.

The rise of optimism in the residential mortgage market

In a recent poll we asked our broker network what type of mortgage applications they received most of recently, as well as what they expect to see more of this year. The resounding answer to both was residential, a very different picture to the mortgage appetite 12 months ago.

With higher interest rates behind us but affordability still a challenge for many, we need to find the right balance and offer products that satisfy demand but also accommodate the financial circumstances of buyers. In 2023, we introduced stepped rates for our two and three-year product ranges for this very reason, ensuring that we continue to support our intermediary partners to achieve their clients’ homebuying ambitions but with a consideration to their monthly payments.

Chris Pickstone, our Head of Mortgage Strategy, comments: “It’s always hard to predict mortgage trends for the year ahead and mortgage rate predictions for 2024/25 are no exception. With an election on the horizon and swap rates fluctuating, knowing for certain what mortgage rates will be is somewhat tricky. We’re definitely seeing some green shoots of recovery, and that’s good news for everyone. Consumer confidence is growing and appetite from mortgage lenders is returning, but we still have to consider affordability. If we see the base rate come down, that will keep things moving in the right direction.

“This January was arguably the strongest start to the year since before the pandemic. This has sparked a flurry of mortgage activity, but we are seeing a real shift in the demands on our intermediary partners. Income has dropped owing to an increase in product transfers, but brokers are definitely still very busy. We’re currently receiving approximately 500 in-bound enquiries from brokers each week, which gives a clear indication of enthusiasm across the board.”

The new normal for interest rates

The Bank of England base rate currently sits at 5.25% and there’s no sign of this falling any time soon. Mortgage costs are still in the news, but are there signs that rates will fall? Our Business Development Manager in the Midlands, Emma Saint, shares her thoughts:

“We are going to see a new normal take shape in the mortgage industry over the next year. It’s very unlikely we’ll see a return to the 2% rates of previous years. We were privileged to have such low rates for such a long time, and we shouldn’t be expecting rates to fall back to these levels. It’s more likely rates will stabilise around 4% next year and into 2026, and this is a return to what we’d usually expect in the finance industry. Either way, the increase in consumer confidence is encouraging. Buyers are definitely feeling that they have put their plans on hold for long enough, and this has sparked a new demand for residential mortgages in recent months.”

Increased demand for remortgages

Another prediction from our broker network is an anticipated increase in remortgages, which 67% expect to see. This exceeded the vote for first time buyer mortgages (33%) and Buy-to-Let mortgages, either for holidays lets or family rental, both of which got 0% of the vote. 

Our Business Development Manager for the North and Scotland, Stephen Calvert, comments: “Over the past year or so, more homeowners have been exploring remortgaging as a way of reducing their monthly payments. With our broker partners expecting this to continue, we see a clear sign that affordability is still very high up the agenda. Homeowners will be looking to take advantage of a lower LTV - potentially having overpaid on their mortgage - enabling them to access more competitive rates. The challenges of the past couple of years have made homeowners more savvy about their options, and remortgaging has and will continue to be a preferred option to keep down monthly repayments.”

A decrease in Buy-to-Lets

Telling a very different story to increased demand for homeownership is our broker partners’ prediction for Buy-to-Let mortgages, which 43% of the community said they expect to drop over the next year. This decrease in Buy-to-Let mortgages is likely due to various factors such as changes in tax regulations, increased stamp duty costs, and the overall uncertainty in the rental market. Landlords may find it less profitable to invest in rental properties, leading to a decline in demand for Buy-to-Let mortgages.

Our Business Development Manager for London and the South, Harry Galvin, explains: “There are a number of reasons that Buy-to-Let is becoming a less attractive proposition for landlords. It’s partly down to the higher cost of borrowing. Many lenders will apply an ICR requirement to Buy-to-Let applications or remortgages, and this will undoubtedly impact applications as landlords grapple balancing their revenue and the current mortgage rates. At Furness, we’re bucking the trend and seeing a healthy amount of Buy-to-Let applications. This is likely because we don't assess Buy-to-Lets with an ICR calculation but instead consider an applicant’s overall financial situation - typically earned income together with mortgage and other credit commitments.”