UK mortgage lending is forecast to post decade-low growth this year and into 2024, according to EY ITEM Club, amid the highest mortgage rates since 2008.  

Home loans in 2023 are expected to rise just 1.5% this year and 2% in 2024, the slowest growth in ten years, as “economic growth remains subdued and weakening housing market sentiment drives down demand,” says the professional services firm’s economic forecasting unit.  

Subdued housing market sentiment and higher borrowing costs have led net mortgage lending to average around £300m a month between January and September this year, the group says in its latest Outlook for Financial Services report.  

This compares to £5.7bn in the same period in 2022, when mortgage approvals were around 40% higher.   

The forecast of 1.5% growth for 2023 is the weakest since 2011, the study adds.  

However, the body expects mortgage demand to pick up over 2024 and 2025 provided inflation continues to fall, the Bank of England cuts interest rates next year, from its current 5.25% rate, and housing affordability improves.  

It forecasts mortgage lending will hit 2.8% in 2025.  

But adds: “These figures remain very low in historical terms and sit far below the 3% averaged during the pre-pandemic years of 2015-2019.”  

The average two-year fixed-rate residential mortgage rate is 6.29% today, unchanged from Friday, according to Moneyfacts data.   

While the average five-year fixed-rate residential mortgage rate is 5.87%, also unchanged from Friday.   

UK gross domestic product grew by 0.2% in August, following a fall of 0.6% in July, according to the latest data from the Office for National Statistics.

EY UK head of banking and capital markets Dan Cooper says: “The ‘higher for longer’ borrowing rates and ongoing cost of living pressures are continuing to have a very real impact on customers, and at the same time, banks are tightening their lending criteria.   

“Firms are also watching impairment levels closely, particularly as fixed-rate mortgages roll onto higher interest rates. However, the combination of tighter regulation imposed post-2008, additional support from lenders, and household savings built up during the pandemic should help keep defaults to a minimum.  

Cooper adds: “Banks are actively working to retain a strong capital position and support their customers in this challenging market.   

“With interest rates now expected to peak at a lower level than previously predicted, we should see a gradual improvement in consumer and business confidence over the next two years, leading to greater appetite to borrow.”