The report says that despite historically low interest rates and accommodative loan-to-value ratios, affordability remains a key challenge for prospective homebuyers. In Q3 2019, the average house price was equal to 4.7 times the average borrower’s income – close to a record high.

UK Finance figures show that mortgage approvals rose to 67,241 in December 2019 from 65,514 in November – the highest level since July 2017, suggesting a boost in confidence following the decisive election result. EY notes that it is unclear at this early stage, whether this momentum will continue.

Home insurance

Prices for home insurance policies rose 2.3% in December, up from a recent low of -1.4% in April 2019.

In Q4 2019 housing transactions, an important driver of big-ticket and insurable household purchases, rose 0.7% on a year earlier. But this followed drops in the previous two quarters and still left transactions below the level in mid-2017.

The housing market has largely remained subdued, however, a pick-up in December following the election result has suggested that improved sentiment could give a boost to homebuying.

Overall, the EY ITEM Club Outlook for financial services report shows non-life premium income growing 3.1% this year, up from an estimated 2.7% in 2019, before climbing to 3.9% in 2020.

Consumer credit

The report also forecasts consumer credit will grow by 3.2% in 2020 – the lowest in six years. Although lending rose a little at the end of 2019, signalling a post-election pick-up in demand, the annual growth forecast remains significantly down from 2017’s peak of 8.3%.

Bank of England figures show that year-on-year unsecured consumer credit growth rose modestly in December to 6.1% from 5.9% in November, consistent with sentiment starting to improve post-election.

Business lending

Bank business lending is expected to grow by just 3.4% – soft by historical standards.

Last year, Brexit uncertainty weighed heavily on business investment and associated borrowing. While investment is expected to return to growth this year following more clarity on the first stage of the Brexit process, the 1.4% predicted rise is modest reflecting the fact that the UK-EU trade deal has still to be negotiated.

Comment

Omar Ali, EY’s UK financial services managing partner, commented: “2020 began with increased political certainty which is positive for consumer and business confidence, and the growth in lending at the back end of 2019 has given cause for cautious optimism.

“However, it is still too early to tell whether these early green shoots will translate into a full and sustained economic recovery this year which will drive growth for financial services firms.

“It is very early days in the negotiations for the new UK-EU trading relationship, with expectations that any financial services deal will be hard fought. On top of that, all businesses are facing additional and significant challenges from wider global geopolitical uncertainty and the yet unknown economic impact of coronavirus. The industry will be watching how the next few months play out very carefully.”

He concluded: “A good Brexit outcome will continue to lay positive foundations for future growth, but there are deeper, structural changes and important emerging trends in both consumer and business finance which the industry needs to tackle.

“In this context, financial services firms need to reconsider the role they will play in helping their customers navigate change. They have put the customer first in their response to Brexit and now need to do the same on climate change, trade and geopolitical unrest.”