Mortgage market ‘set for stagnant year’, economic forecasters say

There will only be a small increase of 0.4% in mortgage lending in 2023, according to the EY Item Club.


Mortgage lending is set to stagnate this year as the cost of living crisis and higher interest rates persuade buyers to think twice, according to a new economic forecast.

Home loans will only grow 0.4% in 2023, the lowest since 2011, and the prospects aren’t  helped by banks using stricter lending criteria, the EY Item Club says.

With expected interest rate cuts later this year, the mortgage market will pick up slightly next year with 1.4% growth, and then improve even more in 2025 with a 2.4% jump.

“After net mortgage lending growth of 4.1% in 2022, the EY Item Club predicts growth will fall significantly this year to just 0.4% (equating to net lending growth of £6.5bn). This would be the weakest growth since just after the financial crisis,” the Item Club says.

A housing market downturn this year is likely to drive a rise in write-offs on mortgage loans, the Item Club says, but the increase should be below that of past recessions.

Anna Anthony, UK Financial Services Managing Partner, EY

Anna Anthony, UK financial services managing partner at EY, says: “The series of economic shocks in recent years and the current cost of living pressures are having a significant impact on both households and businesses.

Banks also face the prospect of the number of loan defaults rising amid the economic downturn.”

“Stretched affordability will affect loan demand across all fronts and banks should be preparing for low and, in some cases, negative lending growth rates.

“Banks also face the prospect of the number of loan defaults rising amid the economic downturn. However, default rates are expected to be much lower than recorded after the financial crisis”.

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