Mortgage lending set to tumble to weakest level in five years
Mortgage lending in 2020 is forecast to fall to its weakest growth rate in five years as a result of rising unemployment and further economic fallout from the Covid-19 crisis.
Growth in home loans is predicted to rise by 2.6 per cent, a level not seen since 2015, before dropping to just 0.5 per cent in 2021, according to economic group EY ITEM Club.
This is despite a relaxation of restrictions on home viewings in May and the stamp duty holiday in place until the end of March 2021.
The group predicted banks are likely to tighten lending standards in the wake of the pandemic, while unemployment constrains growth.
And the economic impact of Covid-19 will likely lead to a rise in overall loan-losses, particularly once the furlough scheme ends and if unemployment subsequently rises, EY added.
Mortgage write-off rates are expected to rise to 0.03 per cent this year, which is three times 2019’s 0.01 per cent, before doubling to 0.06 per cent in 2021 – a rate last seen towards the end of the financial crisis.
Consumer credit to plunge while business lending soars
EY forecast that consumer credit would plummet by 15.9 per cent in 2020, the biggest fall since records began in 1993.
On the other hand, Covid-19 is tipped to push business lending up by 14.4 per cent – the highest level in 13 years.
Banks lent non-financial companies just over £30bn in March – around 100 times the average of net lending over the twelve months to February.
Bank finance and government-backed loans have been crucial to firms during the pandemic, EY said.
But a reduction in borrowing is not expected to happen until 2022.
Dan Cooper, UK head of banking at EY, said: “Even assuming the economy bounces back in the short term, we’re likely to see very weak growth in loans to home buyers and consumers for some time to come.
“However, the banks went into this crisis well capitalised and, despite the level of contraction in GDP this year, which the OBR says is likely to be the biggest decline for 300 years, they have extended significant levels of support to businesses and consumers and are continuing to help drive the economic recovery.”
Omar Ali, UK financial services managing partner at EY, added: “Covid-19 has caused unprecedented challenges for the UK economy, putting financial strain on both businesses and households, and has resulted in a staggering amount of money being lent to firms over a short period of time.
“With a weakened economy, banks face increasing write-offs on all types of lending and, with slow growth for consumer credit forecast, this will add pressure to their profitability and ultimately their ability to lend more to businesses to help kick start growth.”