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Mortgage Market Report

Mid Year 2024

On balance, a surprise to the upside

In December 2023 UK Finance (UKF) forecast that mortgage lending will remain weak again this year for both prospective and existing mortgage borrowers. This is largely due to affordability pressures from higher interest rates and an increase in cost of living.

After gross volumes declined from £316bn in 2022 to £226bn in 2023, a further reduction to £215bn was the baseline forecast for 2024 & 2025. This was based on an assumption of a gradual and modest improvement in affordability  with interest rates normalising at higher levels compared to the last decade. Such a weak outcome would equate to relatively flat net mortgage lending, a far cry from the typical £40-50bn annual growth of the pre pandemic years. The trend of existing borrowers opting to refinance their loans via a Product Transfer was also expected to continue.

The same UKF forecasts also anticipated the financial resilience of borrowers would be tested again in 2024 with more households falling into arrears. Although the rigorous affordability tests in place since 2014 were expected to mitigate the risks of a material increase in mortgage stress.

As we approach half year, the overall report card might read … “better-than-expected” and looking ahead into H2, there remain grounds for a cautious optimism that earlier forecasts for the full year may have understated.

Macro growth resuming as inflation pressures recede

After the relatively shallow recession in H2 23, the GDP data in Q1 alongside relatively upbeat  business and consumer surveys suggest that the UK economy has returned to a path of modest, if unspectacular growth. With headline inflation falling towards the 2.0% target by early summer and wage growth still relatively robust, the slow and gradual recovery in real disposable household incomes is progressing.  

The key risk to a sustained recovery in the next 12 months has been identified as ongoing geopolitical uncertainties which potentially could trigger an adverse “market event” or a second “inflation shock” if we see a resurgence in energy prices. There are also residual concerns that the underlying inflation outlook may prove to be more “sticky”, limiting the scope of potential interest rate cuts.

Housing market yet to fully adjust but prices resilient

The housing market has held up relatively well post pandemic,  despite expectations of a sharp decline in  prices. In the immediate aftermath of the ill-fated minibudget in late 2022, the widely held view was for a 10-15% decline in house prices, consistent with a sharp increase in borrowing costs. 

Between late 2022 and last Autumn average house prices did fall by about 5% but since then, have been on a gently upwards trend again, albeit with some month on month volatility and regional variations.

Mortgage market dynamics have been pivotal

After the “convulsion” in borrowing rates in late 2022, home loan pricing has stabilised in a lower and narrower range while the higher concentration of fixed rate mortgages has delayed and spread out the full impact of rising interest rates on mortgage payments. To date, around two thirds of the total impact of the increase in base rates from 0.15% to 5.25% has fed through to mortgage payers, softening the blow on the housing market.

The latest data suggest that housing activity stirred again in Q1 as chartered surveyors signalled more properties coming onto the market, growing interest from new buyers and higher sales. Last month,  the Bank of England reported mortgage approvals rising to their highest levels in 18 months, in advance of the traditionally busiest time of the year.

A positive development this year has been the expansion in product availability and choice with the total rising from just over 5,000 in 2023 to over 6,000 across all LTVs in 2024, the highest in 16 years (Moneyfacts). Two and Five year fixed rate loans are significantly cheaper than a year ago although more recently, the tempering of interest rate expectations and volatility in swap rates has been a reminder that mortgage product pricing is not on a linear trend downwards.

Stress indicators contained

While the data confirms an increase  in mortgage arrears year to date, there remains a confidence that numbers will peak at levels well below those recorded during previous periods of economic difficulty or sharp rises in interest rates. Within the framework of the Mortgage Charter and long established forbearance practices, lenders have continued to provide a range of tailored support options.  Low levels of repossessions  and  the reluctance of lenders to repossess properties without having exhausted other options shows market resilience.

More stringent regulation since the financial crisis means that lenders and borrowers are better placed to cope with higher mortgage rates. Most players would agree that regulatory measures have raised the quality of mortgage lending and kept mortgage arrears down.

Furthermore, the labour market continues to be characterised, not by steeply rising unemployment but by weaker participation rates post pandemic and while the jobs market has started to cool, there seems little cause for anxiety.  


Looking ahead, the market appears to have some momentum as we move towards H2 although the scaling back of expectations of interest rate cuts may dampen the mood a little. Underlying demand is still positive and in the context of soaring and record rental costs, homeownership should continue to be an attractive option for those who can make the sums work. Of course, the challenge for many first time buyers remains daunting , often requiring dual incomes and parental support in the toughest affordability conditions in 70 years, according to a recent report from the Building Societies Association. 

In theory, a combination of higher rents and, in time, slightly lower borrowing costs should also bolster the investment case for some revival in Buy to Let purchases.  

Overall, the market will remain sensitive to the scale and pace of interest rate changes, and with only a modest improvement in affordability on the horizon, we should be realistic in our expectations for  house price growth this year or next. The feedthrough of higher interest rates to existing mortgages has further to run.   

Alan Bridle, UK Economist, Bank of Ireland UK

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