UK mortgage lending is hit amid interest rate fears
The British mortgage market is in the doldrums because high interest rates are deterring home buyers.
Lending is expected to grow by just 1.5 percent in 2023 and 2 percent in 2024 – the smallest two-year increase in a decade, according to EY data.
It comes as consumers remain fearful of high interest rates and inflation, forcing them to back off plans to buy new homes and take out mortgages.
The forecast for 2023 is the weakest since 2011.
This decline in demand has meant that net mortgage lending averaged just £300m per month from January to September 2023.
In the doldrums: lending is expected to grow by only 1.5 percent in 2023 and 2 percent in 2024
This compares with £5.7 billion in the same period in 2022, at a time when mortgage approvals were around 40 per cent higher. The housing market boomed during the pandemic as buyers took advantage of a stamp duty holiday.
And while EY has forecast that mortgage demand will pick up until 2025, this is dependent on continued declines in inflation and interest rate cuts next year.
But the Bank of England last week dashed hopes that such cuts were around the corner, keeping interest rates on hold for the second time in a row.
“We will be closely monitoring whether further rate increases are necessary,” Governor Andrew Bailey said. “It’s far too early to think about interest rate cuts.”
His comments underlined tougher language in the Bank’s quarterly monetary policy report, which said interest rate policy “will likely have to be restrictive for an extended period.”
The aggressive message will likely prove a bitter pill for millions of mortgage holders and businesses hoping borrowing costs will decline. If the latest market forecasts are correct, an interest rate cut will not take place until well into next year.
This backdrop will also worsen as the conflict in the Middle East and the ongoing war in Ukraine continue to create instability in the global economy.
Anna Anthony, partner at EY, said: ‘The UK is still on track to avoid a recession this year, but the economic environment remains challenging.
“Escalating geopolitical tensions around the world are another cause for concern, and it will be wise for financial institutions to be prepared for further declines in consumer and business confidence.”