Slow growth: People walk past shops, with the City of London financial district in the background. Business lending is expected to return to growth in 2024, but it’s estimated that the increase will be less than 1%. — Reuters
LONDON: Mortgage lending is expected to grow at its slowest rate in more than a decade amid the United Kingdom’s rising interest rates and falling house prices, a report says.
Demand for mortgages is set to increase just 0.4% this year, down from 4.1% in 2022, according to research from accounting firm EY.
That’s due to a toxic mix of rising borrowing costs, inflation-squeezed incomes and falling house prices that are still very high by historical standards.
The last time lending for homebuyers was this slow was in 2011, in the aftermath of the financial crisis.
Growth in mortgage lending could pick up in 2024, reaching 1.4%, EY said.
Still, that depends on easing inflation and the Bank of England (BoE) cutting borrowing costs at the end of this year.
“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,” said Anna Anthony, UK financial services managing partner at EY.
“Those most affected are the vulnerable in society and small businesses, which may have limited financial cushions of support to fall back on.”
Bank-to-business lending is also facing a reversal of fortunes.
EY predicts higher debt servicing costs, lower earnings and supply chain snarls will see it drop 3.8% this year, after a 3.7% rise in 2022.
Although business lending is expected to return to growth in 2024, it’s estimated the increase will be less than 1%.
The estimates come after the BoE said the UK economy is already in recession.
The country will struggle to expand even after the downturn is over due to the twin challenges of low growth and high inflation, teh accounting firm noted.
In this climate, banks should brace for low or even negative lending growth rates as well as rising defaults, according to EY’s managing partner.
Still, default rates are predicted to stay considerably below the levels reached during the financial crisis.
Consumer credit is set to grow 4.8% this year and increase even further in 2024, according to EY.
The sharpest rise in consumer borrowing in over 18 years has benefited UK retailers, as Britons turn to buy-now-pay-later and other financing options for everything from milk to TVs.
EY said hopes of an economic recovery in the second half of this year are helping keep credit demand afloat, even as the cost-of-living crisis deters customers from spending on big-ticket items. — Bloomberg
