This year is set to be the strongest for mortgage lending since 2007, after the stamp duty holiday and a wave of domestic workers moving out of cities, according to a trade association.
An estimated £316 billion in home loans were made this year, according to the UK finance agency – an increase of nearly a third (31%) compared to 2020.
This is set to be the highest total since total lending reached £357 billion in 2007.
UK Finance said home purchases were the main driver of lending in 2021, while home re-mortgage activity was down slightly from last year.
It also predicted that lending would decline to £281 billion in 2022, before rising to £313 billion in 2023.
UK Finance said the housing market will inevitably decline in 2022 compared to this year, as demand from the stamp duty holiday, which ended in England and Northern Ireland in October, will not boost home purchases.
However, other behavioral changes caused by the Covid-19 virus, chief among them the re-emergence of home mover numbers after a decade of stagnation, are likely to provide some continued impetus.
Flexible working is now an integral part of many companies’ long-term policies, which means that daily commuting is less of a consideration for many home movers.
They can now think of different locations where their money can go further.
Refinancing activity is expected to rebound modestly next year and accelerate somewhat in 2023.
More fixed-rate mortgage deals, including the five-year deals that took place in 2017, are set to expire and the loans will be eligible for refinancing.
UK Finance said total home purchase transactions, including cash purchases, will reach 1.5 million in 2021, up about 47% from 2020 and the highest number since before the global financial crisis.
James Touch, director of data and research at UK Finance, said: “2021 has been a record year for mortgage lending amid the stamp duty holiday and workers moving out of cities.
The outlook for the housing and mortgage markets over the next two years is to return to a more stable and balanced picture following the turmoil of the past two years.
“While risks remain, both for new lending and continued affordability, the market appears to be emerging from the pandemic in a better place than previously anticipated, buoyed by a much-improved broader economic outlook.”
UK Finance said the coronavirus pandemic is adding uncertainty to its forecast – and the picture of unemployment after the holiday scheme ends is still not entirely clear.
Higher inflation will put pressure on real income next year, and the prospect of increases in the Bank of England’s policy rate over the next two years may also put pressure on affordability, although the extent of any increases is likely to be relatively modest, according to it. British Finance Agency.