Paul Broadhead, Head of Mortgage & Housing Policy at the BSA, shares his insight into the current state of the UK housing and mortgage markets and provides details of how lenders are ready to support borrowers in need. 

This article was first published in Mortgage Finance Gazette.

As the days have started getting brighter and longer, and we’re seeing the positive signs of spring all around us, it’s good to see similar green shoots appearing in the housing market.

Yes, the rising cost of living is still hitting us hard in their pocket, and the slight uptick in inflation last month, whilst not unexpected, was unwelcome. But we’re now 12 months on from the invasion of Ukraine, which led to soaring fuel prices and escalating inflation, and as each month rolls on from now inflation rates should fall rapidly.

Throughout the last year, lenders have had their arrears’ radars on high alert. So far, we have not seen any material spike in arrears data. Indeed, the Financial Conduct Authority (FCA) has recently almost halved its forecast of the number of borrowers in arrears – from 215,000 to 116,000, as it more realistically only references those who are 1.5%+ in arrears. The regulator has also improved its outlook for those expected to go into arrears this year, now forecasting an additional 356,000 borrowers, compared to its previous prediction of 560,000.

The March Property Tracker Report supports the FCA’s direction of travel, with the vast majority of mortgage borrowers (88%) remaining confident that they can maintain their mortgage repayments. Just 2% said they were very concerned about being able to pay their mortgage in the next six months.  

Lenders are not however complacent. They are well aware that around 1.8 million households will be coming to the end of a fixed-rate mortgage this year, with most, if not all, seeing a significant increase in their mortgage costs. Only time will tell whether this has been factored into their financial planning. 

Aware of the payment shock that is coming down the line for many, a number of lenders have been investing in more sophisticated ways of getting on the front foot to support borrowers, even before they fall behind with any payments. They are using a variety of indicators to identify households potentially at risk of getting into financial difficulties and proactively contacting them to discuss options that may help to keep them in the black. With a range of options in their toolkits that allow them to provide tailored support and forbearance, initiatives such as these, together with the recent reduction in the wait time for Support for Mortgage Interest (SMI), should contribute to keeping arrears and repossession figures low.

The Property Tracker Report also delivered some modest signs of improving sentiment in the housing market, with the proportion of people who think now is a good time to buy increasing slightly on the figures from three months earlier.  The overall improved outlook for the UK economy and falling mortgage rates, despite the increases in the Bank Rate, therefore appears to be impacting consumer thinking, if not yet their behaviour.

Another indicator that the tide is turning came from RightMove, whose house price data released in mid-March showed a small increase in prices. Whilst it was only 0.8% on average across the UK – and it’s just one house price tracker amongst many – it is a significant change in a market where we have seen monthly price falls since they peaked in October 2022. According to their data, it is typical first-time buyer properties that are leading the recovery with prices for newly marketed homes in this category just £500 lower than their record last year.

Although getting on the first step of the property ladder remains challenging, with affording mortgage payments and raising a deposit continuing to be the main obstacles, rising wages and mortgage rates reducing from the rates seen at the end of last year will hopefully be having some positive impact. First-time buyers will still feel their affordability is stretched and may need to reassess the size or type of property they can buy, but the early signs that the market is recovering suggests that this important group of homebuyers are active in the market.

It’s too early to say that the housing market has recovered from what has been a turbulent six months, but there are some green shoots appearing, providing a little cautious optimism. Let’s hope we can nurture the positives, whilst not forgetting those who will undoubtedly find 2023 a challenging year.