Stretched affordability and high borrowing rates continue to impact home-buying demand, according to the latest EY ITEM Club Outlook for Financial Services
UK mortgage lending is forecast to grow just 1.5% (net) in 2024, according to the latest EY ITEM Club Outlook for Financial Services.
It says stretched affordability and high borrowing rates continue to impact home-buying demand.
Nevertheless, growth is predicted to more than double year-on-year in 2025 – reaching 3.2% (net) – provided inflation continues to drop and interest rates are reduced later this year as expected.
The after-effects of the UK economy’s recession in the H2 2023 continue to weigh on GDP growth in 2024, but economic recovery is expected to gain momentum this year as declining inflation boosts household spending power and pressure from high interest rates begins to ease. However, increasing geopolitical tensions in Europe and the Middle East continue to present material downside risk to confidence levels.
Anna Anthony, UK Financial Services Managing Partner at EY, says: While we are hopefully beginning to see economic recovery in the UK, both households and businesses continue to face high borrowing costs. This of course has knock-on effects on bank lending, and activity in the housing market has been particularly affected. High living and lending costs have meant fewer house purchases, and although we are starting to see signs that activity is picking-up, we expect mortgage lending growth to be very low again this year.
She says: If inflation continues to drop and interest rates are cut in the coming months as expected, we believe economic recovery and market confidence will gain momentum in 2025. Nevertheless, election uncertainty in the UK and in the US, besides rising geopolitical tensions in the Middle East and Ukraine, mean potential risks to the downside remain very real.
The housing market has shown signs of recovery in recent months, with mortgage approvals increasing for the fifth successive month in February.
Nevertheless, borrowing costs remain high and stretched affordability will likely constrain demand, and the EY ITEM Club expects UK mortgage lending to grow just 1.5% (net) in 2024.