According to the EY Item Club, this is equal to around net lending growth of £6.5bn but will recover in 2024 and 2025.
The forecast suggests that net mortgage lending would increase 1.4 per cent in 2024, equal to £23bn growth, 2.4 per cent rise in 2025 or £40bn increase.
The firm said that the housing market “faces multiple headwinds” this year pointing to the cost of living pressures, falling real household incomes and rising interest and mortgage rates.
Along with falling market demand, the firm said that lenders were “expected to tighten their mortgage lending criteria” due to higher interest rates, a challenging economic outlook and falling house prices.
The Item Club added that the housing market downturn this year would likely “drive a rise in write-offs on mortgage loans” but that this should be lower than in previous recessions.
It explained: “Tighter mortgage regulation since the financial crisis should mean mortgage holders are better able to deal with higher rates, while the savings built up by some households during the pandemic will provide a cushion of support.”
EY added that a modest peak in forecasted unemployment should keep non-performing loans down and “greater leniency” from lenders would help reduce defaults. This includes switching mortgage holders to interest-only deals.
Impairments on mortgages are set to rise to 0.05 per cent this year, up from 0.01 per cent last year. In 2024, mortgage impairments are forecast to come to 0.04 per cent and 0.03 per cent in 2025.
This compares to 0.08 per cent in 2009 during the financial crisis.
