Gross mortgage lending should set a new record of £316bn in 2021, an increase of 31% from 2020, UK Finance has projected.
House purchase activity has been the main driver (£200bn, up 53% on 2020), while homeowner remortgaging activity will be slightly down on last year at £62bn.
Buy-to-let lending is expected to rise by 83% year-on-year to £18bn this year.
However the market should cool next year, with £281bn of lending projected in 2022, before rising to £313bn in 2023.
This is due to the removal of demand stimulus from the stamp duty holiday.
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 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 predicted the resurgence of homemover activity to continue firing up the housing market going forward.
This is because of changing attitudes around working from home, with many businesses integrating this into their longer-term policies.
Refinancing activity will pick up modestly next year but accelerate somewhat in 2023, as higher volumes of fixed rate deals, including five-year deals taken out in 2017, are set to end and the loans become eligible for refinancing.