UK mortgage market slumps as high interest rates deter homebuyers
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UK mortgage market slumps as high interest rates deter homebuyers

According to Ernst & Young, loan growth rates for 2023 and 2024 will be 1.5% and 2% respectively, the smallest increases in a decade.

This weak forecast is due to the continued impact of high interest rates and inflation, which is forcing consumers to put plans to purchase new homes and take out mortgages on hold.

The slowdown in demand has resulted in average monthly net mortgage originations between January and September 2023 of just £300 million. This is a 40% drop from the £5.7bn of mortgage approvals in the same period in 2022. During the epidemic, there was a boom in the real estate market as homebuyers took advantage of the stamp duty exemption.

Although EY expects mortgage demand to rebound in 2025, this is dependent on inflation continuing to fall and interest rates falling next year. However, last week the Bank of England left interest rates unchanged for the second time in a row, dousing hopes of an imminent rate cut.

UK mortgage market slumps as high interest rates deter homebuyers

Bank of England governor Andrew Bailey said: “We will be keeping a close eye on the need for further interest rate rises. It is too early to consider a rate cut.

His comments echoed the harsh wording of the central bank’s quarterly monetary policy report, which said interest rate policy ‘may need to remain tight for a considerable period of time’.

This hawkish stance is likely to disappoint millions of mortgage holders and businesses hoping for lower borrowing costs. If the latest market forecasts are accurate, interest rates may not be cut until next year.

This challenging backdrop is further exacerbated by the conflict in the Middle East and the war in Ukraine, which continues to disrupt the global economy.

Anna Anthony, partner at Ernst & Young, said: ‘While the UK is still likely to avoid a recession this year, the economic environment remains challenging.

Escalating global geopolitical tensions are a further cause for concern and financial institutions should be wary of a further decline in consumer and business confidence.

In the short term, the UK mortgage market is expected to remain subdued as high interest rates and inflation put pressure on consumer spending. However, demand could pick up in 2025 if inflation falls and interest rates come down.

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