Q3 saw consumer confidence continue to build from the historic low last September following the Truss administration’s mini-Budget, according to the latest Household Finance review from UK Finance.
However, even with this continuing recovery, consumer confidence remained in a significant negative net position.
In part, the recovery in confidence is due to the receding impact of the deep fall in the indicator readings following the mini-Budget.
It also likely reflects the steady fall in inflation through Q3.
In addition, the report found that mortgage lending for house purchase continued to fall sharply through Q3.
Lending to both first-time buyers (FTBs) and home movers has now fallen, year on year, in every month since December 2022.
Although the rate of decline moderated through the third quarter, FTB activity was still down almost one fifth, and movers by one quarter, compared with Q3 last year.
What’s more, since Q4 2022, each consecutive quarter of data has shown a further increase in borrowers behind on their mortgage payments.
This trend continued in Q3, and at the end of the quarter there were some 99,480 mortgages in arrears representing over 2.5% of their mortgage balance.
This represents an increase of 9% compared with the figure at the end of Q2.
Adam Oldfield, chief revenue officer at Phoebus Software, said: “Despite the turmoil over the last quarter across rising interest rates and inflation the market has held up remarkably well.
“Although arrears have increased and may continue to do so into 2024 the number in percentage terms remains low.
“This is the area of the market that will need the greatest management in the coming months as more people come off historically low interest rates onto much higher Standard Variable Rates (SVRs).
“Even if borrowers decide to fix, the fact is that the rate they will be fixing at will increase their monthly payments to a level they didn’t plan for when first taking out their mortgages.”
He added: “When we look at the contraction in retail sales, and even this week we heard that the Christmas rush has been more subdued, which shows a level of caution as borrowers assess the impact of further borrowing.
“Nevertheless, a huge number of properties have come onto the market in the last few weeks, so perhaps the start of 2024 will be more buoyant than the end of 2023.”
Maria Harris, chair of The Open Property Data Association, said: “With more mortgage holders rolling off historically low rates and the continued pressure on household spending, having accurate and trustable data about our property has never been more important.
“Housing transaction volumes rely heavily on consumer confidence so the continued contraction in house purchase lending, and challenges to affordability, look likely to drive further delays in purchase or home moving decisions.
“The recent National Trading Standards publication of what constitutes Material Information for property listings will really help with this.
“Providing clear and verifiable data about the property, including any additional charges, legal restrictions, and energy performance data. will make it easier for potential buyers to know what their new household costs will include and how this could impact on their affordability or buying decision.”
Further reaction:
Jamie Alexander, mortgage director at Alexander Southwell Mortgage Services:
“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.”
Graham Cox, founder at Self-Employed Mortgage Hub:
“Mortgage lending has plummeted this year, and it’s no surprise that it’s the high loan-to-value (LTV) 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 that 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.”
Samuel Mather-Holgate, independent financial adviser at Mather and Murray Financial:
“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 looming, 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.”
Stephen Perkins, managing director at Yellow Brick Mortgages:
“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.”
Craig Fish, director at Lodestone Mortgages & Protection:
“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.”
Ranald Mitchell, director at Charwin Private Clients:
“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.”
Justin Moy, managing director at EHF Mortgages:
“The combination of high rates and challenging affordability models have really made an impact this year, so the UK Finance data is no surprise.
“With over one 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.”
Joshua Gerstler, chartered financial planner and owner at The Orchard Practice:
“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.”
Michelle Lawson, director at Lawson Financial:
“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.”
