UK Finance has released its latest Household Finance Review for Q4 2024, which explores trends in household spending, saving, and borrowing.
UK Finance noted in the update that the mortgage market strengthened in Q4 2024, with both first-time buyers and home mover numbers “up by almost a third compared to a year ago, and forward-looking data suggests this will persist through the first quarter of 2025.”
UK Finance also mentioned that mortgage regulations introduced over the past decade have “disproportionately impacted the level of deposits that first time buyers in London need.”
UK Finance added that savings levels continued to rise and “surpassed the previous peak recorded in December 2022.”
Overall, UK Finance pointed out that 2024 was “considerably better for the mortgage market than many predicted.”
With rates offered in the market reducing through most of the year, the industry body said they “saw first time buyer numbers rise by 16.4 per cent and home movers rise by 14.7 per cent.”
Some of the growth in the final quarter of the year, “where both first time buyer and home mover numbers were up by almost a third compared to a year ago, is likely from borrowers looking to complete before the changes to Stamp Duty thresholds in April 2025.”
Refinancing activity was down “compared to last year, but higher volumes of expiring fixed rate deals will drive a stronger market in 2025 – 1.8 million fixed rate mortgages are due to expire in 2025, up from 1.4 million in 2024.”
Internal product transfers remain the “most popular” choice for those seeking to refinance their mortgage borrowing, but they “expect to see an increase in external remortgage activity in 2025.”
Impact of mortgage regulation
The Financial Conduct Authority (FCA) has committed to “begin simplifying responsible lending and advice rules for mortgages, supporting home ownership and opening a discussion on the balance between access to lending and levels of defaults”.
Both the FCA and the Bank of England’s Financial Policy Committee (FPC) have mortgage lending rules:
- The FCA’s responsible lending rules came into effect in 2014
- The FPC’s current rule that a lender may not grant more than 15 per cent of new mortgages at over 4.5 times income came into effect in 2017
Since these rules came into force, alongside tightened affordability more broadly, UK Finance said they “have seen changes for first time buyers in the level of deposit required, particularly in and around London.”
Due to the much higher house prices, “a significant amount of lending in the capital is at higher loan to income multiples.”
Currently around 30 per cent of all lending “at a loan to income ratio of more than 4.5 takes place in London.”
What is notable is first time buyers in London seeking to “borrow below 4.5 times their income now have to find much larger deposits than before – in excess of 2.5 times their annual household income, compared with around 1.9 times before these rules came in – to make up for the lower loan size available.”
The layering of regulation, combined with house prices outstripping wage growth, has therefore “made it more challenging for prospective buyers to access mortgage credit without substantial external financial support, such as assistance from family.”
Through the final quarter of 2024, household deposits held in high street banks continued “to rise and in November 2024 the level of savings hit £1,093 billion, which was higher than the previous peak of £1,085 billion recorded in December 2022.”
There was notable growth in the amounts “held in notice accounts and they represented 25 per cent of household deposits at the end of 2024, compared with 16 per cent at the end of 2022.”
Whilst savings levels built up through 2024, overdraft debt “was essentially flat through the year, but we did see credit card usage growing in line with long-term trends.”
Slightly less than half of balances “are interest-bearing and credit cards are increasingly being used as a payment method rather than for borrowing.”
Eric Leenders, Managing Director of Personal Finance, said:
“The final quarter of 2024 showed the resilience of UK households amid changing economic conditions, with mortgage lending showing strong growth and arrears continuing their downward trend. Consumer spending returned to growth for the first time in over two years and savings were up, with notice accounts proving popular.”
They added:
“The regulatory review of mortgage lending rules, which are arguably restricting the number of people who can access mortgage lending, will be welcome news for aspiring homeowners. Reviewing these rules would help with affordability issues, not just for first time buyers but also those looking to move further up the housing ladder.”