Economic headwinds are set to shrink purchases in the buy-to-let market by 7% next year to £9 billion, predicts UK Finance.

The trade association reports that cost and rate pressures drove a sharp contraction throughout 2023 but saw a modest recovery this year when house purchase lending to landlords grew by 13% to £10 billion, in response to lower new mortgage rates.

Next year, however, conditions look more challenging. The introduction of an additional 2% stamp duty surcharge announced in the Autumn Budget will act as a further deterrent to a market which already faces heightened regulatory and taxation challenges, according to UK Finance.

In the house sales market, lending in 2024 totalled £135 billion, an increase of 11% compared with 2023. In 2025, it expects further gradual improvements in mortgage affordability to drive another 10% increase in purchase lending, to £148 billion.

Subdued

Remortgaging activity was relatively subdued in 2024 – down 10% to £59 billion - due partly to slightly lower numbers of customers with fixed rate mortgages reaching the end of their deal periods. However, despite some cuts in offer rates and rising real wages, affordability constraints limited the options for customers looking to refinance on the open market. Next year, remortgaging is predicted to rise 30% to £76 billion.

The number of customers falling behind on their mortgages looks to have peaked early in 2024 before falling back, reports UK Finance. While the number of properties taken into possession has risen, this is largely due to historic arrears cases working through the court system.

Toby Leek (pictured), NAEA Propertymark president, says: “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.”