After two years of slow growth, UK mortgage lending is predicted to double in 2025, driven by falling interest rates and rising consumer confidence. According to the EY ITEM Club outlook for financial services, the market is set for a major recovery as borrowing conditions improve.
Mortgage lending growth is expected to rise from 1.5% in 2024 to 3.1% in 2025, signaling a renewed demand for home loans. However, with house prices remaining high and mortgage rates still above pre-pandemic levels, the long-term growth trajectory will likely stabilize at 3.2% in 2026 and 3.6% in 2027.
How Will Falling Interest Rates Impact the UK Housing Market?
The Bank of England’s anticipated interest rate cuts are a key factor behind the mortgage market revival. Lower rates mean cheaper borrowing costs, making homeownership more accessible for first-time buyers and those looking to remortgage.
Key predictions for 2025:
- Mortgage lending growth: Expected to reach 3.1%, up from 1.5% in 2024.
- Interest rates: Further cuts anticipated, reducing borrowing costs.
- Household spending: Expected to increase as affordability improves.
- Geopolitical risks: Could impact market confidence, requiring cautious optimism.
According to Martina Keane, EY UK & Ireland financial services leader, the UK’s gradual economic recovery is improving consumer sentiment, encouraging more borrowing from banks.
What Are the Long-Term Mortgage Market Projections?
Despite the 2025 growth surge, experts predict that mortgage lending will stabilize at moderate levels over the next few years:
| Year | Mortgage Lending Growth |
|---|---|
| 2024 | 1.5% |
| 2025 | 3.1% |
| 2026 | 3.2% |
| 2027 | 3.6% |
Mortgage write-off rates are also expected to decline due to lower borrowing costs. The EY ITEM Club forecasts:
- 2024: 0.004% write-off rate.
- 2025: Drop to 0.001%.
- 2026-2027: Slight rise to 0.002%.
How Will Business Loan Demand Change in 2025?
Falling interest rates are also expected to drive business loan demand, as companies take advantage of lower borrowing costs to expand operations.
- Business loans are predicted to rise, boosting overall lending activity.
- Economic uncertainties, including UK tax hikes and geopolitical risks, may affect corporate borrowing decisions.
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FAQs
Will mortgage lending really double in 2025?
Yes, mortgage lending growth is forecast to rise from 1.5% in 2024 to 3.1% in 2025, driven by falling interest rates and increased consumer confidence.
Why are interest rates expected to drop in 2025?
The Bank of England is likely to cut rates to support economic recovery, reducing borrowing costs for homeowners and businesses.
How will falling interest rates impact homebuyers?
Lower interest rates make mortgages more affordable, increasing buyer demand and supporting property prices.
What challenges could slow down mortgage market growth?
Geopolitical tensions, UK tax increases, and inflation concerns could affect market confidence, slowing lending growth.
Will house prices drop in 2025?
While mortgage affordability will improve, house prices may remain high due to strong demand and limited housing supply.
What will happen to mortgage write-off rates?
Write-off rates are expected to decrease to 0.001% in 2025, reflecting improved borrower repayment capacity.
Will business loan demand increase in 2025?
Yes, falling interest rates are expected to boost demand for business loans, supporting UK economic activity.
What are the long-term mortgage lending growth predictions?
Mortgage lending is forecast to stabilize at 3.2% in 2026 and 3.6% in 2027, reflecting steady but controlled growth.
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