Credit, Collections & Insolvency News
Mortgage lending growth is forecasted to more than double from 1.5% in 2024 to 3.1% in 2025, and grow to 3.2% in 2026, as rates fall and consumer confidence rises according to a report from EY Item Club. The growth is largely attributed to anticipated interest rate cuts by the Bank of England, which recently lowered rates to 4.5%.
However, with rising house prices and high mortgage rates persisting, mortgage lending growth is expected to be steady thereafter, with growth forecast at 3.2% (net) in 2026.
Following no growth in UK mortgage lending in 2023 (0% net), interest rate cuts, falling inflation and real income growth, boosted housing market activity in the second half of 2024. This resulted in modest mortgage lending growth of 1.5% (net) in 2024.
With further, albeit gradual, interest rate cuts predicted this year, consumer confidence and appetite to borrow is also expected to grow, and the EY ITEM Club forecasts UK mortgage lending growth to more than double to 3.1% (net) in 2025.
However, with rising house prices and high mortgage rates persisting, mortgage lending growth is expected to remain steady over the coming years, with growth forecast at 3.2% (net) in 2026 and 3.6% (net) in 2027.
Martina Keane, EY UK & Ireland Financial Services Leader, comments: “The UK’s gradual economic recovery is strengthening confidence and translating into more appetite to borrow from UK banks. Looking to the year ahead, if interest rates are cut further as expected, borrowing costs should fall, the capacity for household spending will grow, and stronger levels of mortgage borrowing should return after two years of little-to-no growth. However, optimism must remain measured. We begin 2025 facing heightened geopolitical tensions and a sense of uncertainty around the impact of upcoming UK tax rises, presenting a very real downside risk to market confidence and the overall outlook for lending growth.”
UK unsecured credit grew by 6.4% (net) in 2024 – the highest growth since 2017 (8% net) – driven by stabilising inflation and steady wage growth. Consumer credit demand is expected to remain healthy as consumer caution eases and interest rates fall. As a result, the EY ITEM Club forecasts unsecured credit to grow by 5.8% (net) is forecast in 2025, 6.8% (net) in 2026 and 5.5% (net) in 2027.
Defaults on UK consumer loans are also expected to remain low. The 2025 rate is forecast to remain unchanged at 0.9% (in line with 0.9% in 2024) due to continued high employment. The rate is forecast to rise marginally to 1.0% in 2026 and in 2027 as real income slows.
Keane concluded “The UK’s financial services sector has proven its resilience time and again in recent years, and now, with economic recovery turning a corner, the industry is looking to the future with optimism. While geopolitical uncertainty persists, the UK’s financial services industry remains a leading force on the world stage, and will continue to prioritise support for customers while using this growth opportunity to drive strategic transformation and innovation.”