UK mortgage lending is set to record decade-low growth in 2023 and 2024, according to a forecast.
Mortgage loans are expected to rise just 1.5 per cent net in 2023 and two per cent net in 2024, which would represent the lowest growth over a two-year period in a decade, according to the EY ITEM Club Outlook for Financial Services.
High mortgage costs, leading to lower property sales, are dampening demand for borrowing.
In December 2021, the average interest on a five-year fixed mortgage was just 2.64 per cent, but now this figure sits at 5.87 per cent, according to the financial analytics firm MoneyFacts.
Some mortgage brokers have told i that lenders are likely to cut rates in the coming months as they try to attract more business but have warned customers to “manage expectations” about how cheap mortgages will get.
Justin Moy of EHF Mortgages, told i: “Mortgage lenders are significantly behind their 2023 targets, hence some better rates over the last few months and that will continue into 2024, as the high street will want a strong positive start to the year.
But he added that the improvements were “small” and were not making a “significant” difference to affordability.
Nick Mendes, of John Charcol brokers, similarly warned customers to “manage expectations” and added: “Lenders will be balancing winning business but also ensuring that products remain profitable – 2023 has been a difficult year, with 2024 not looking any easier.”
Dan Cooper, UK head of banking and capital markets at EY, said: “The ‘higher for longer’ borrowing rates and ongoing cost-of-living pressures are continuing to have a very real impact on customers, and at the same time, banks are tightening their lending criteria.
“Banks are actively working to retain a strong capital position and support their customers in this challenging market.”
EY ITEM Club expects demand for borrowing to pick up within the next two years, as long as inflation continues to fall, the Bank of England cuts interest rates next year, and housing affordability improves.
Overall, it expects lending to grow by 2.8 per cent in 2025, though this still remains very low in historical terms.
And it warned that global events such as the crisis in the Middle East and the war in Ukraine could cause falls in consumer and business confidence and appetite to borrow.