The Intermediary Mortgage Lenders Association (IMLA) has predicted a increase in gross mortgage lending to £283 billion this year together with a swift return to household spending as Covid-19 lockdown restrictions are eased.

The trade body’s New Normal report, which makes a number of predictions about the mortgage market over the coming year, observes that household finances generally remain robust and will continue to weather the current economic volatility. Unlike previous financial crises, the unique government support package provided since the start of the Covid-19 crisis has helped the majority of households to maintain financial stability.

The predictions follow data which show the number of mortgage borrowers on payment deferrals at the end of 2020 had fallen from a peak of more than 1.8 million in June to just 127,000 by 20 November. The number of mortgages in arrears of three- to six-months continued to fall in the third quarter of 2020 to just 0.28% of all loans – the lowest figure since current records began. This combination of factors suggests that the UK’s mortgage market will not face an arrears crisis in 2021.

IMLA’s report also found that while household consumption – which comprises two-thirds of economic activity in the UK in a normal year – was constrained in 2020 by social distancing measures, the subsequent build-up of household cash balances (£222 billion between February and November 2020 – an average of £13,400 for a family of four) provides the opportunity for a rapid return to spending in 2021. This will provide a valuable injection to the economy and could help revive the hardest hit sectors, such as the hospitality and leisure industries.

Kate Davies, IMLA’s executive director, said: “Many have predicted doom and gloom for the housing market since the crisis began. However, our analysis shows there is room for more optimistic thinking. Since the first lockdown back in March, the mortgage market has shown remarkable resilience. Spending more time at home has led many to reconsider their living arrangements, helping to boost demand for homes across the UK.

“This surge in interest has been supported by the government’s stimulus package, which in most cases has helped to support individuals far better than has been the case in previous financial crises. The combination of these factors leads us to believe that 2021 will be a year of modest growth for the housing and mortgage markets.”