The organisation that represents mortgage lenders has issued an unusually upbeat forecast for next year, saying that lower interest rates and easing ‘cost of living’ pressures will lead to greater mortgage affordability and buying activity during 2025.

Finance UK expects lending for home purchases to rise by 10% to £148 billion but says buy-to-let mortgage lending will drop by 7% to £9 billion while remortgaging activity will increase by 30% to £76 billion.

The organisation says its predictions are based on a good 2024 which, although it saw activity still well below previous years, indicates 2025 should see considerable rises in mortgage lending as economic confidence returns.

Its only area for concern is the Buy-to-Let market, which it expects to be ‘more challenging’ largely due to the extra Stamp Duty introduced for buy-to-let purchases by the Chancellor during her recent Autumn budget.

“In 2025 we are forecasting continued steady growth in both house purchase and remortgage lending as affordability improves further,” says James Tatch, Head of Analytics at UK Finance.

“We are however forecasting a slight fall in buy-to-let lending in 2025.”

The number of people getting behind with their mortgage payments increased during 2023, Tatch says, but the position improved this year with some 104,200 in arrears, and this is expected to dip below 100,000 next year.

Toby Leek, NAEA Propertymark President, says: “It is positive to see growing consumer confidence as we head towards the new year, thanks to stronger mortgage affordability and more a steady economic climate.

“As 2025 progresses we hope to see lenders bring even more competitive mortgage products to the market.

“Should inflation and interest rates both continue to move in a more positive direction in 2025, then the new year should be an extremely upbeat one for the housing market, especially as the UK Government aims to boost the number of new homes available.”