The EY Item Club is warning that the UK is set to experience the slowest two-year mortgage growth in a decade.
EY says high interest rates along with constrained growth in the wider economy will deter prospective homebuyers.
The economic forecasters project net mortgage lending to increase by only 1.5 per cent in 2023 and 2.0 per cent in 2024.
These figures represent the lowest rates of growth since the financial challenges of the early 2010s.
EY also warns there is a risk that conflicts in the Middle East and Ukraine may also hamper borrowing appetite in the near term.
EY expects mortgage lending would pick up in 2024 and 2025 if inflation continued to fall, the Bank of England cuts interest rates and housing becomes more affordable.
However, the 2.8 per cent growth forecast for 2025 is still below the 3.0 per cent pre-pandemic average between 2015 and 2019.
“The ‘higher for longer’ borrowing rates and ongoing cost of living pressures are continuing to have a very real impact on customers, and at the same time, banks are tightening their lending criteria” says said Dan Cooper, UK head of banking and capital markets at EY.
“Banks are actively working to retain a strong capital position and support their customers in this challenging market. With interest rates now expected to peak at a lower level than previously predicted, we should see a gradual improvement in consumer and business confidence over the next two years, leading to greater appetite to borrow.”