Is There a UK Mortgage Crisis?

by | Monday 6th Nov 2023 | Mortgage News

The UK is on the brink of experiencing the slowest two-year mortgage growth in a decade, that is according to a recent report by Ernst & Young Item Club. High-interest rates and restrained economic expansion are expected to dampen the enthusiasm of prospective homebuyers, making the road to homeownership a more challenging journey and the potential for a UK mortgage crisis closer than it has been in years.

Economic forecasters at Ernst & Young LLP have projected that net mortgage lending in the UK will increase by only 1.5% in 2023 and 2% in 2024. These figures have been revised recently as the state of the economy in the UK has developed. The figures show the lowest growth since the financial challenges of the early 2010s after the 2008 financial crash. However, there is the potential of a rebound in mortgage lending for 2024 and 2025, depending on several key factors.

What Is Fuelling a UK Mortgage Crisis

The primary cause of the downturn in mortgage growth recorded is the high lending interest rates. The recent increase in interest rates, driven by inflation pressures and the tightening monetary policy from the Bank of England, has made borrowing much more expensive for UK citizens. These higher-than-normal rates have discouraged potential homebuyers, leading them to reconsider their plans to buy new homes and take on a mortgage. With many opting to ‘wait it out’ rather than dive into home purchases or refinances.

UK Mortgage Growth

The forecasted growth of 1.5% in 2023 and 2% in 2024 represents a significant decrease from previous years. In comparison, mortgage lending surged during the pandemic, with mortgage approvals reaching record highs due to the stamp duty holiday, which incentivised homebuyers. Others would also say that spending so much time confined in a property also encouraged people to upgrade their homes.

Net Mortgage Lending Is Down Across The UK

One of the most telling signs of the slowdown in the mortgage market is the significant drop in net mortgage lending. From January to September 2023, net mortgage lending averaged just £300 million per month. In contrast, the same period in 2022 saw an average of £5.7 billion per month in net mortgage lending, during a time when mortgage approvals were approximately 40% higher.

The economic climate is challenging for prospective homebuyers. The previous persistent inflation and the Bank of England raising interest rates further have caused many consumers to retreat from their plans to purchase new homes. However, there is a ray of light shining through the clouds. Inflation, although not dropping, has remained fairly stable for the last few months and the Bank of England has held interest rates for two consecutive months.

Not All Bad News?

Ernst & Young does anticipate a recovery in mortgage lending for 2024 and 2025. But this depends on a few things happening. Firstly, inflation must continue to decline, which would alleviate some of the financial burdens on consumers and improve affordability. If inflation does not drop, then mortgage lending will continue to decrease. Also, and linked to inflation dropping, interest rate cuts from the Bank of England must happen. Of course, lower interest rates could help encourage demand in the mortgage market from borrowers, making mortgages more attractive for prospective homebuyers.

The recovery in the mortgage market is also reliant on an overall improvement in housing affordability. As house prices have continued to rise in recent years, particularly in popular urban areas, affordability has become a significant concern for many first-time buyers. If measures are taken to address this issue and make housing more accessible, it could drive renewed interest in the property market.

Speak To a Mortgage Expert

The UK mortgage market is undoubtedly experiencing a slowdown of sorts, with the slowest two-year growth rate recorded in a decade. High-interest rates and other economic challenges have deterred potential homebuyers from taking on mortgages. However, there is hope for a recovery in the coming years.

But does that mean that you should sit back and do nothing? Absolutely not! If you currently have a mortgage that is coming to an end within the next 6 months, you must speak to a mortgage advisor about securing a new mortgage deal! With high interest rates rife, you must make sure that you get the most competitive deal for your circumstances. Call or email our team of brokers today to discuss all of your mortgage needs and options. We are here to help.

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If you have any questions about UK mortgage news or or anything you’ve read then please get in touch. We’d love to hear from you.

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