UK mortgage lending growth is set to more than double in 2025, increasing from 1.5 per cent in 2024 to 3.1 per cent, according to the EY Item Club Outlook for Financial Services, writes Emily Braeger.

This rise is attributed to falling interest rates and improved consumer confidence.

However, with high house prices and mortgage rates, growth is expected to stabilise at around 3.2 per cent in 2026.

The broader UK economy has been recovering more slowly than anticipated, but GDP is projected to rise by 1 per cent in 2025 and 1.6 per cent in 2026, contributing to a stronger appetite for borrowing.

Total bank lending in the UK is forecast to reach 3.7 per cent this year, up from 2.3 per cent in 2024.

Business lending is also predicted to strengthen, with a growth forecast of 4.5 per cent in 2025, despite a downgrade from previous expectations.

Demand for consumer credit remains strong, expected to grow by 5.8 per cent in 2025.

Default rates on mortgages and business loans are expected to stabilise, while consumer loan defaults should remain low, supported by high employment levels.

Martina Keane, EY UK & Ireland financial services leader, said: "The UK's gradual economic recovery is strengthening confidence and translating into more appetite to borrow.

"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."