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Mortgage growth in the UK is forecast to be the lowest in a decade at 1.5% in 2023 and 2% in 2024, according to Ernst & Young.

This bleak forecast is due to the continued impact of high interest rates and inflation, forcing consumers to put plans to buy new homes and mortgages on hold.

The slowdown in demand has resulted in average monthly net mortgage originations between January and September 2023 of just £300m. This is down 40% from the £5.7 billion of mortgage approvals in the same period in 2022. The housing market boomed during the epidemic as homebuyers took advantage of the stamp duty-free period.

EY expects mortgage demand to rebound in 2025, but 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.

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.

High interest rates cause UK mortgage market to struggle

His comments echoed the harsh wording of the central bank’s quarterly monetary policy report, which stated that interest rate policy ‘may need to remain restrictive for an extended period of time’.

This hawkish stance is likely to disappoint millions of mortgage holders and businesses looking for lower borrowing costs. If the latest market forecasts are accurate, there will be no rate cut later this year.

This challenging backdrop is also further exacerbated by the conflict in the Middle East and the war in Ukraine, both of which continue to bring instability to the global economy.

Anna Anthony, partner at EY, said: ‘While the UK remains on track to avoid a recession this year, the economic environment remains challenging.

Escalating global geopolitical tensions are also a concern, and financial institutions should be wary of further declines in consumer and business confidence.

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

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