UK mortgage lending to be lowest in over a decade in 2023
BRITAIN’S mortgage lending is headed for its biggest plunge in more than a decade next year after a surge in interest rates and cost-ofliving squeeze brings household budgets to a breaking point.
Total loans for house purchases may total just £11bil (Rm60bil) next year, a fraction of the £63bil (Rm344bil) expected for 2022, according to a report from the consultant EY.
That would mark 0.7% growth in lending, the lowest since 2011 and down from a healthy 4% increase expected this year.
The report is the latest warning sign flashing for Britain’s housing market, which kept growing through the pandemic even as the economy tipped into recession.
With another downturn underway, lenders and estate agents have for months predicted that the property market is likely to slow if not plunge in the months ahead.
Borrowing costs are soaring along with expectations that the Bank of England will keep raising interest rates in response to the highest inflation in 40 years.
Investors are betting on the biggest increase in 33 years when policy makers meet again next week, taking the base rate to 3% from near zero at the end of last year.
“While interest rates are still fairly low by historical standards, they are the highest they’ve been in a decade and are set to rise further,” says Anna Anthony, UK financial services managing partner at EY.
“This will put further pressure on alreadystrained finances and will have a knock-on effect on demand for most forms of bank lending.”
The cost of key UK mortgages remains close to a peak last seen in the 2008 financial crisis, which is reducing the number of people who can afford to buy property.
It’s also raising the costs for borrowers who need to refinance loans, which in the UK market typically happens at least every five years.
The average two-year fixed-rate home loan fell slightly to 6.49% on Thursday, the first time it has dropped below 6.5% for ten days.
That’s as the average five-year fixed-rate deal also dipped to 6.35%, although it remains close to a 14-year high, according to Moneyfacts Group Plc.
Analysts at Credit Suisse say that house prices “could easily fall 10% to 15%,” and others including Niraj Shah of Bloomberg Economics predict double-digit declines. Analysts at HSBC have predicted falls of 7.5% nationally and 15% in London.
That will reverse some of the gains made since the start of the pandemic, a period that has seen house prices soar 23%.
The factors that boosted the market then – a strong labour market and shortages of homes for sale – may continue to provide some support, the mortgage lender Halifax said on Oct 7.
The political turmoil that culminated with Prime Minister Liz Truss handing power to Rishi Sunak also is weighing on the market.
In recent weeks, Truss’s plans for unfunded tax cuts spooked investors, pushing up interest rates in financial markets.
While those rates have come down sharply with a U-turn on the budget measures, mortgage rates have yet to return to the levels prevailing in the summer.
For now, the housing market remains healthy, with asking prices for properties coming to market rising in September at the strongest pace in months, according to real estate search website Rightmove.
But its report also showed buyer demand has fallen 15% in the first two weeks of October. — Bloomberg
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