Mortgage lending hit on interest rate concerns

mortgage lending

Lending is forecasted to increase only 1.5% in 2023 and 2% in 2024 – the smallest rise over a two-year period in a decade

The UK mortgage market is stuck in the doldrums as high interest rates put off home buyers.

Lending is predicted to increase only 1.5% in 2023 and 2% in 2024 – the smallest rise over a two-year period in a decade, according to data from EY.

It comes as consumers remain spooked by high interest rates and inflation – compelling them to pull back from plans to buy new homes and take on a mortgage.

The forecast for 2023 is the weakest since 2011.

This slowing demand has led to net mortgage lending to average just £300 million per month from January to September 2023.

This compares to £5.7 billion in same period last year, at a time when mortgage approvals were nearly 40% higher. The housing market boomed during the covid crisis when buyers took advantage of a stamp-duty holiday.

And although EY has forecasted mortgage demand will rise through 2025, this is dependent on inflation continuing to drop and interest rate reductions next year.

But the BoE dashed hopes last week that such cuts would be around the corner – holding interest rates for the second consecutive time.

We will be watching closely to see if further rate hikes are required, Governor Andrew Bailey said. It is much too early to be thinking about rate cuts.

His comments underlined tougher language in the Bank’s quarterly monetary policy report, which said that interest rate policy was ‘likely to need to be restrictive for an extended period of time’.

The hawkish message is likely to prove difficult to digest for millions of mortgage holders and businesses hoping that borrowing costs will drop. If latest market projections are right, there will be no rate cut until well into 2024.

This backdrop is also set to worsen as the war in the Middle East and the ongoing conflict in Ukraine continue to create instability in the global economy.

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