UK Housing Market: Rise again
Morningstar DBRS analysts provide insights into the UK housing market, highlighting a resurgence in house prices alongside concerns over a spike in mortgage arrears. Despite resilient job markets and moderating inflation, challenges continue in the mortgage sector.
Resilient Housing Market:
After four consecutive quarters of negative year-on-year house price inflation, the UK experienced a positive percentage change in house prices in the first quarter of 2024. The average UK house price rose by 1% compared to 2023 levels, signaling a gradual recovery in the housing market.
Improving Affordability Amid Challenges:
With wages on the rise, inflation moderating, and mortgage rates stabilizing, affordability in the housing market is gradually improving. However, affordability remains a key constraint to faster house price growth.
Concerns Over Mortgage Arrears:
Despite positive trends, there has been a concerning spike in mortgage arrears. The value of outstanding balances with arrears surged by 50.3% year-on-year in Q4 2023, reaching £20.3 billion. While the proportion of total loan balances with arrears remains low at 1.2%, the continuous increase in arrears over several quarters raises alarms.
Repossessions and LTV Ratios:
Repossessions have seen an uptick following the lifting of relief measures related to the COVID-19 pandemic, though they remain at historic lows. Additionally, there has been a rise in loans with higher loan-to-value ratios (LTVs), reaching 5.5% of gross mortgage advances in Q4 2023, the highest since Q1 2020.
Mortgage Rate Trends:
While mortgage rates have fallen since the end of 2023, they remain high and volatile. Recent increases in mortgage rates, driven by news of higher interest rates from the Bank of England, pose challenges for borrowers adjusting to higher mortgage costs.
Outlook for 2024:
Despite tight financial conditions and persistent high inflation slowing down the UK economy, analysts expect UK house prices to stabilize and modestly increase in 2024. Factors such as low unemployment, inflation, and strong wage growth support this outlook. However, challenges persist as borrowers transition from attractive fixed rates, potentially leading to continued increases in arrears.
Political Uncertainty:
The upcoming general elections in July could introduce a degree of uncertainty over policies, potentially impacting the housing market landscape.
