According to EY Item Club Outlook for Financial Services, mortgage lending is predicted to rise four per cent this year following a strong demand in the first-half of the year. This is £63bn in net terms.
However, EY said that it would slow next year citing rising mortgage rates and falling real household incomes.
The firm noted that this would rebound in 2024 to 1.4 per cent growth.
EY added that impairments on mortgage loans are forecast to rise from 0.02 per cent this year to a nine-year high of 0.05 per cent next year.
This is below the peak of 0.08 per cent in 2009 and is expected to fall to 0.04 per cent in 2024.
The report added that banks will tighten their lending criteria as demand dips along with higher interest rates, riskier economic outlook and volatility in financial markets.
Consumer credit is predicted to grow 7.2 per cent as cost of living crisis and inflationary pressures deepen. Going into 2023, this will slow to 5.1 per cent as inflation lowers and the squeeze on household income eases.
Business lending is expected to increase by 2.2 per cent this year and a net fall of 3.5 per cent is predicted as business appetite and ability to borrow is impacted by economic outlook, rising borrowing costs and debt left over from the pandemic.
EY: ‘Potential homeowners pause purchases’
Anna Anthony, UK financial services managing partner at EY, said: “Geopolitics and the worsening economic environment are having a significant impact on households and businesses. While interest rates are still fairly low by historic standards, they are the highest they’ve been in a decade and are set to rise further.
“This will put further pressure on already-strained finances and will have a knock-on effect on demand for most forms of bank lending next year, as potential homeowners postpone purchases and businesses pause investment.”
She continued that affordability is “stretched” and mortgage and business lending are “likely to slow to a rate similar to that seen post-financial crisis”.
Anthony added that a key difference now was tighter regulation and high solvency levels, so banks are well capitalized and more able at supporting customers.
She explained that consumers had a financial cushion of savings built up during the pandemic and businesses had taken out government-guaranteed loan schemes on fixed rate terms at lower interest rates.
“This all means that consumers and businesses are better positioned than they were over a decade ago, and the banks better able to support them,” she concluded.
