Mortgage lending will grow by 0.7% in 2023 following a 4% increase in 2022, according to the EY Item Club Outlook for Financial Services.
Consumer credit borrowing is expected to increase by 7.2% this year as the cost-of-living crisis bites. EY forecasts this will start to slow next year, dropping to 5.1%.
Meanwhile, business borrowing is anticipated to increase by 2.2% this year before falling in 2023.
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.
“Affordability is stretched and mortgage and business lending are likely to slow to a rate similar to that seen post-financial crisis.
“The key difference now is that tighter regulation and higher solvency levels mean banks are well capitalised and far more able to support customers through this challenging period.
“Another crucial difference is that many consumers are entering this period with a financial cushion in the form of savings built up during the pandemic, and businesses that took out government-guaranteed loan schemes during COVID-19 remain on fixed rate terms at relatively low 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.
Impairments on mortgages are forecast to rise from 0.02% in 2022 to a nine year high of 0.05% in 2023. This is below the peak of 0.08% reached in 2009. In 2024 it is forecast to fall to 0.04%.
