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EY Item Club predicts sluggish growth for mortgage lending

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  • 28/05/2019
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EY Item Club predicts sluggish growth for mortgage lending
The EY Item Club has forecast that mortgage lending will rise by just below one per cent this year, the lowest growth since 2011, with the market stifled by a combination of Brexit-related uncertainty and a high average price-to-income ratio.

 

The latest figures are based on the assumption that the UK will reach an agreement for a managed withdrawal from the EU by the 31 October deadline.

Growth in mortgage lending is predicted to reach 1.3% in 2020. This is because “house prices remain high and, to many potential buyers, unaffordable,” said Omar Ali, EY UK financial services managing partner (pictured).

“With the household saving ratio well below the long-run average, and continued Brexit-related uncertainty, consumers are likely to want to bolster their finances rather than to increase spending,” Ali added. The ratio of house prices to incomes was 5.7 at the start of the year, compared to an annual average of 4.81 in the period since 2000.

However, continued low interest rates are providing an upside to the market. Net mortgage lending rose by just over three per cent at the start of 2019 compared to a year earlier. This was in line with the pace seen in 2016. It compares to an average of 10 per cent during the decade preceding the financial crisis.

Continued political uncertainty surrounding Brexit, and increasing international trade protectionism, is impacting appetites to borrow and spend across consumer and business lending markets.

Growth in demand for consumer credit is forecast at 1.6 per cent this year and two per cent in 2020, down from 4 per cent in 2018.

Business lending is forecast to rise 1.3% this year and 2.2% in 2020. However, business investment is forecast to decline, following last year’s fall of 0.4 per cent – the first since 2009.

The outlook for the economy overall is “subdued”, with growth pegged at 1.3% this year and 1.5% in 2020.

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