Lenders expect mortgage demand to shrink in early 2025, Bank of England finds

Demand for mortgages from home buyers is expected to fall back in early 2025, according to a survey of banks and building societies.

Lenders reported that mortgage demand for house purchases increased in the final months of last year, but was expected to decrease in early 2025.

The Bank of England’s Credit Conditions Survey was carried out between November 18 and December 6 2024.

Lenders were asked to report changes in the three months to the end of November 2024, compared with the previous three months.

They were also asked about expected changes in the three months to the end of February 2025, relative to the three-month period between September and November 2024.

Simon Gammon, managing partner, Knight Frank Finance, said: “Clearly, the lenders think that the beginning of 2025 will be another period of sluggish activity in the housing market. As things stand, this is likely to prove true.”

He highlighted recent bond market volatility, which could have an impact on the cost of some mortgages.

Mr Gammon added: “That said, fairly positive inflation data from both the UK and the US this week has calmed bond markets, which suggests we’ll see a swift repricing, rather than weeks of sustained increases in mortgage rates.”

Some recent housing market reports have pointed to buyers aiming to complete deals before stamp duty discounts become less generous.

From April 1 2025, the “nil rate” stamp duty threshold for first-time buyers will decrease from £425,000 currently to £300,000.

The Credit Conditions Survey also said that demand for remortgaging also increased in the three months to the end of November, but was expected to decrease in the next three months.

Demand for credit card borrowing is expected to increase slightly in the three months to the end of February.

Lenders reported that the length of interest-free periods on new credit cards for purchases and balance transfers increased as 2024 drew to an end, and were also expected to increase in early 2025.

Default rates on mortgages increased slightly in the three months to November, but were expected to be unchanged in the next three months.

For credit card borrowing, defaults are expected to rise over the three months to the end of February.

Karim Haji, global and UK head of financial services at KPMG, said: “These latest figures mark the eighth quarter in a row where lenders have reported a rise in mortgage defaults.

“This points to the financial strain on households as many are hit by higher mortgage rates in an environment which is still challenged by (the) high cost of living and uncertain future interest rates.

“Against a backdrop of weak UK growth and continued inflationary pressures, we may see defaults continue to rise in the months ahead. Recent shifts in expectations on when and by how much interest rates are likely to fall mean households might expect more financial pain for longer.

“While some other areas of credit remain stable, such as default rates on (non-mortgage) lending which fell, the rise in mortgage defaults highlights ongoing economic uncertainty and suggests that many households are still feeling the financial pinch.”

Looking at business borrowing, the report said demand increased in the three months to the end of November.

Demand for corporate lending is expected to be unchanged for small, medium, and large businesses in the three months to the end of February.

Lenders reported that default rates on loans to corporates were unchanged for small, medium and big firms in the three months to the end of November, and were also expected to be unchanged across all business sizes in the three months to the end of February.

The results of the survey do not necessarily reflect the Bank of England’s own views on credit conditions. It carries out the survey of lenders each quarter as part of its role to maintain financial stability.