The latest EY ITEM Club outlook for financial services, published today, found that although the consumer credit, residential mortgage and business lending markets are all set to have a subdued 2018, the forecast is better than previously anticipated, due to a stronger than expected economy and the expectation of securing a Brexit implementation period.
Mortgages are expected to remain a core focus for lenders in the North this year, although competition in the market will remain strong and lenders will continue to see their margins under pressure.
Nationally, mortgage lending is forecast to rise 2.4 per cent in 2018; little more than half of last year’s 42 per cent.
Steve Robb, EY’s head of financial services for the North, said: “Competition in the market will still be very strong and lenders will continue to see their margins under pressure. While competition is good for consumers, driving better products and services, it will add to the uncertainty of financial services firms themselves investing for the future.”
EY managing partner Omar Ali added: “As we move towards a deal with Europe, the hope is that appetite to borrow will pick up, supported by the cut to Stamp Duty for first-time buyers.”
Meanwhile, business lending is forecast to drop back 0.9 per cent this year to £385bn in 2018 (from £388bn in 2017), as demand for bank lending falls and firms looks towards alternative sources of finance such as bond issuance.
Annual growth in consumer credit is expected to slow for the first time in five years, dropping to three per cent and then 2.8 per cent in 2019, as consumers hit the brakes on the amount of debt they hold. This is a fall from the previous highs of 6.9 per cent growth in 2017 and eight per cent growth in 2016.
The insurance sector is set for a mixed year. Motor insurers have been buoyed by the recent revisions to the Ogden Discount Rate for personal injury claims and the increase in premiums - average premiums now stand at record high, exceeding the previous peak reached in 2011.
However, car registrations are forecast to fall further in 2018 and 2019 by six per cent and 2.3 per cent respectively – as people adopt a more cautious approach to car finance and diesel vehicles decline in popularity - before growth returns in 2020.
Home insurers though, will face growing pressures from the climbing cost of house repairs, largely reflecting an increase in the cost of leak damage and will be impacted by the slowing growth in housing transactions, dampening demand.
The life and pensions sector is predicted to perform reasonably well. Notwithstanding recent market turbulence, equity prices should perform well, the report said, supported by a strong outlook for global GDP growth.
Meanwhile, according to EY, currency effects are set to dampen growth in assets under management this year but global economic strength and pensions policy should help support the sector.
Mr Ali said: “2018 won’t be an easy year for UK financial services as Brexit uncertainties continue to linger, affecting consumer confidence.
“Consumer spending is expected to be reined in, leading to less demand for insurance as new car registrations fall and growth in the number of properties sold slows.
“But, the outlook is better than envisaged due to stronger than expected economic growth, and even though there will only be low growth in disposal incomes, lending is expected to rise steadily again over the next few years.
“This is of course based on securing a transitional Brexit deal in March and not crashing out in 2019.”