UK Finance Household Finance Review Q3 2023
UK Finance has this morning published its Household Finance Review Q3 2023, which can be downloaded here. Newspage asked brokers and money experts for their thoughts, below.
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The report reveals a bleak landscape for the UK housing market and highlights the grim state many household finances are in. The stark decline in mortgage lending, particularly for those at the lower end of the income spectrum, highlights a continued affordability crisis. House prices haven't dropped significantly enough to push people back into taking on mortgages with higher rates. The resilience in mortgage refinancing and low levels of repossessions, while reassuring, may only offer temporary relief in the face of broader economic uncertainties. Overall, these trends underscore the need for targeted policy measures to address the deepening affordability issues in the housing market.
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Mortgage lending has plummeted this year, and it's no surprise that it's the high loan-to-value end of the market most affected, populated as it is by first-time buyers who are holding fire. Firstly because, trapped by extortionate rents, overpriced housing stock, and cost of living pressures, they can't save enough for a deposit. And second, because those with small deposits pay the highest mortgage rates. Saving a deposit is the single biggest hurdle stopping the young getting onto the housing ladder. Lower house prices would help with that. But no first-time buyers means prices will continue to fall because transactions stall. A fundamental rethink is required to solve the housing crisis. Or failing that, a change of government.
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This report is a stark warning about the future of the economy, with almost every indicating factor showing signs of deterioration. It's almost certain that a recession is looking, we just don't know how long and sharp it will be. The report can be summarised as, households that have savings are running them down, and those that don't are getting into debt. This is an unsustainable state of affairs that needs addressing now, not in six months' time after a General Election.
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No surprises here at all. The cost of living crisis is nowhere near finished yet as many homeowners still have to add a potentially significant mortgage payment hike to their already strained finances. Many households are getting by on credit and raiding their savings, which is only a short-term fix. We need more mortgage rate cuts to steady the boat before it capsizes.
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This report is just as expected and paints a very bleak picture of the UK economy right now. Sadly, this is set to get worse as more than 1.4 million mortgage holders are set to come off low fixed rates over the next 12 months. Product transfer popularity did see a huge increase due to affordability constraints, but this looks like it might be an area set to improve going into 2024, with ever-improving remortgage rates. In general, though, confidence is improving as interest rates reduce and we are starting to see more interest from those wishing to purchase.
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This latest data from UK Finance is no surprise, showing that people looking to buy with lower deposits are struggling to meet lender affordability requirements. With rates dropping and lenders focused on helping this end of the market, 2024 may look a little brighter for people looking to get onto the ladder. The rise in retention is no surprise either. Many mortgage holders need to simply accept what their lenders are offering, as switching elsewhere is no more attractive and even if they did, they may again fail affordability to do so. With cost of living pressures, savings erosion and many households facing a sharp increase in mortgage costs, the full effects of the problem unfolding in the economy have yet to be seen. This report is a massive red flag.
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The combination of high rates and challenging affordabilty models have really made an impact this year, so the UK Finance data is no suprise. With over 1 million borrowers still to suffer rate shock in 2024, the legacy of delayed repossessions, more arrears and credit blips still to come, this report just confirms that while it's bad now, worse is to follow before there is light at the end of the tunnel.
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These results don't really come as any surprise sadly. Inflation has had a significant impact on ONS data, which lenders use to assess background affordability. The CPI results on the 18th December will be key and we can hope this has fallen further although they need to be dissected fully rather than being guided by headline data. Hopefully 2024 will bring some joy after an extremely challenging 2023.
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Times are tough for a lot of families out there. Despite this, people are still spending on holidays and travel, which shows how important experiences are for people rather than material possessions. The number one activity that families tell us they want to do more of in the future, is travel. It is good to see that people are doing this now and not waiting until it is too late. The flip side to this is less money to put away and invest for the future which will put families, and therefore the state, under more pressure in the future.