This year is set to be the strongest for mortgage lending since 2007, following the stamp duty holiday and a wave of homeworkers moving from cities, according to a trade association.
An estimated £316 billion of home loans has been handed out this year, UK Finance said – up by nearly a third (31%) compared with 2020.
This is set to be the highest total since gross lending reached £357 billion in 2007.
House purchases have been the main driver of lending in 2021, while homeowner re-mortgaging activity has been slightly down on last year, UK Finance said.
It also predicted that lending will moderate to £281 billion in 2022, before increasing to £313 billion in 2023.
While risks remain, both to new lending and ongoing affordability, the market looks to be emerging from the pandemic in a better place than previously anticipatedJames Tatch, UK Finance
The housing market will inevitably soften in 2022 compared with this year, UK Finance said, as the demand from the stamp duty holiday, which ended in England and Northern Ireland in October, will no longer be boosting house purchases.
However, other Covid-19-triggered behavioural changes, most significantly the resurgence in home mover numbers following a decade of stagnation, are likely to provide some continued impetus, it added.
Flexible working is now embedded in many businesses’ longer-term policies, meaning a daily commute is less of a consideration for many home movers.
They can now consider different locations where their money could go further.
Refinancing activity is expected to pick up modestly next year and accelerate somewhat in 2023.
Higher numbers of fixed-rate mortgage deals, including five-year deals taken out in 2017, are set to end and the loans will become eligible for refinancing.
Total house purchase transactions, including cash purchases, will reach 1.5 million in 2021, UK Finance said, some 47% higher than 2020 and the highest number since before the global financial crisis.
James Tatch, principal, data and research at UK Finance, said: “2021 has been a record year for mortgage lending amid the stamp duty holiday and homeworkers moving from cities.
“The outlook for the housing and mortgage markets over the next two years is for a return to a more stable, balanced picture following the upheavals of the last two years.
“While risks remain, both to new lending and ongoing affordability, the market looks to be emerging from the pandemic in a better place than previously anticipated, supported by a much-improved wider economic outlook.”
UK Finance said the coronavirus pandemic adds uncertainty to its forecasts – and the unemployment picture following the end of the furlough scheme is still not fully clear.
Rising inflation will put a squeeze on real incomes next year and the potential for Bank of England base rate increases over the next two years could also place pressure on affordability, although the extent of any increases is likely to be relatively modest, UK Finance said.