Last year, the mortgage market experienced a significant slump, attributed to affordability pressures that made it increasingly difficult for individuals to secure mortgages. This trend is expected to continue into 2024, although there’s a glimmer of hope with projections suggesting a modest recovery in the first quarter. The tightening grip on household finances has seen the number of loans to first-time buyers (FTBs) plummet to their lowest since 2013, marking a worrying trend for those looking to step onto the property ladder.
The Rise of Longer Mortgage Terms
In an attempt to navigate the stormy waters of the housing market, a notable shift has been observed with one in five FTBs opting for mortgage terms extending beyond 35 years. This move is a clear attempt to improve affordability by reducing monthly payments, a significant jump from the previous year where fewer than one in ten chose this route.
Savings Take a Hit
The economic strain didn’t stop at mortgages; it also ate into the nation’s savings. For the first time in a quarter-century, savings levels dropped each month throughout the year as households were forced to dip into their rainy-day funds to manage soaring bills and other expenditures. This has left many, especially those without a financial cushion, with no choice but to cut down on their monthly spending.
A Harsher Blow to Home Movers
The impact on home movers has been even more severe than on FTBs. Without the aid of family support or Stamp Duty exemptions, home movers saw a 26% drop in loan numbers, the lowest since 1974. This significant decline underscores the growing barriers to homeownership and mobility within the housing market.
Signs of Recovery Amidst Continuing Challenges
Despite the grim outlook, there was a silver lining towards the end of 2023. The number of mortgage applications saw an uptick in the fourth quarter, signaling a potential revival in market activity spurred by easing inflation and the anticipation of lower borrowing costs.
However, the effects of last year’s price hikes still loom large, with many households having to tighten their belts further, especially on non-essential spending. Yet, it’s not all doom and gloom. The report highlights a commendable management of unsecured debt, with a reduction in overdraft debt and a lower proportion of interest-bearing credit card balances, pointing to a cautious approach towards financial obligations amidst ongoing economic pressures.
Looking Ahead
Mortgages in arrears rose throughout 2023, yet remained under one percent of the total mortgages, suggesting that stress tests for borrowers are holding strong against the tide. Nonetheless, an increase in arrears is anticipated for 2024, albeit at a slower pace than last year.
The number of home repossessions stayed relatively steady, with most cases dating back to pre-pandemic times, indicating a resilience in the face of adversity for many.
Eric Leenders of UK Finance reflects on the past year as a difficult period for UK households, with affordability remaining a critical barrier. Yet, he also notes the proactive steps by many to manage their debt and encourages those struggling to reach out to their lenders for support.