The UK mortgage market is stagnant as high interest rates discourage homebuyers.
Lending is forecast to grow just 1.5 percent in 2023 and 2 percent in 2024, the smallest increase over a two-year period in a decade, according to EY data.
It comes as consumers remain spooked by high interest rates and inflation, forcing them to abandon plans to buy new homes and take out a mortgage.
The forecast for 2023 is the weakest since 2011.
This slowdown in demand has led to net mortgage lending averaging just £300m per month from January to September 2023.
From stagnation: Loans are expected to grow 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 property market boomed during the pandemic as buyers took advantage of a stamp duty holiday.
And while EY has forecast mortgage demand will recover through 2025, this depends on inflation continuing to fall and interest rates being cut next year.
But last week the Bank of England crushed hopes that such cuts were just around the corner, holding interest rates on hold for the second time in a row.
“We will be watching closely to see if further rate increases are needed,” said Gov. Andrew Bailey. “It’s too early to think about rate cuts.”
His comments underscored tougher language in the Bank’s quarterly monetary policy report, which said interest rate policy would “likely need to be restrictive for an extended period of time.”
The hardline message is likely to come as a bitter pill to swallow for millions of mortgage holders and businesses waiting for borrowing costs to fall. If the latest market projections are correct, there will be no rate cuts until well into next year.
This context 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 recession this year, but the economic environment remains challenging.
“Escalating geopolitical tensions around the world is another cause for concern, and financial institutions will be wise to be prepared for further declines in consumer and business confidence.”