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Bank warns: 2024 mortgage lending drop, more arrears

  • Mortgage lending decline expected
  • UK housing demand to rise
  • Affordability challenges until 2025

Although affordability is anticipated to remain limited, UK Finance predicts demand will increase once more as household finances stabilize.

Mortgage lending is projected to decline in 2024. This is as the number of delinquent households and repossessions will increase, as predicted by a trade organization for lenders.

Extended Affordability Struggles and Economic Factors

Although affordability pressures reached their zenith, primarily due to the conclusion of the Bank of England’s interest rate hike cycle to combat inflation, the situation is not expected to improve until 2025, according to UK Finance.

The report highlighted the ongoing strain on household budgets caused by the broader cost of living crisis and the persistently high mortgage rates compared to levels observed after the financial crisis.

Last week, the Bank warned that mortgage interest rate rises have not reached five million homeowners, or half.

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According to data released by Moneyfacts on Friday, the average two-year fixed-rate residential mortgage fell below 6% for the first time in six months.

Over five years, the percentage was 5.6%.

According to the financial information service, more two-year agreements are offered at interest rates below 5%. This trend has the potential to stimulate lending demand and further reduce average interest rates in the coming months.

Nevertheless, it is generally anticipated that these declines will be constrained. This is due to the Bank of England’s current stance on delaying the implementation of interest rate reductions.

The financial markets anticipate that the initial interest rate reduction from the present level of 5.25% will occur. This is expected during the third quarter of the following year.

Bank governor Andrew Bailey has regularly cautioned that interest rates will continue to rise as long as inflationary pressures persist.

UK Finance projects that the number of mortgage arrears, defined as those delinquent by more than 2.5% of their outstanding balance, will increase from 105,600 at the end of this year to 128,000 in 2024.

While repossessions remain “incredibly low” in comparison to historical averages, the trade association predicts they will increase from 4,400 this year to approximately 5,100 next year.

“With an ongoing favourable labour market, substantial lender forbearance, and a gradual improvement in affordability, the overwhelming majority of customers who are presently falling behind will ultimately regain their positions,” stated the report. In the few cases where this is not possible, possessions will not rise during the anticipated term.

Future Predictions and Call for Action

UK Finance director of analytics James Tatch said 2023 was difficult for current and potential mortgage debtors. They struggled with affordability due to growing interest rates, living costs, and housing prices above income levels.

“As a result of these obstacles, home purchase financing has been restricted.” Simultaneously, most current borrowers seeking to refinance opted for a product transfer with their current lender, which prevents the need for affordability assessments.

“Because these pressures are not anticipated to abate substantially in the near future. We anticipate that lending will continue to be inadequate in 2024. A gradual improvement in affordability is anticipated to manifest in a moderate surge in activity levels by 2025.”

“Additionally, the difficult economic climate has caused an increase in the number of homes in mortgage arrears.” Nevertheless, the stringent affordability assessments implemented since 2014 are presently functioning to guarantee that despite the heightened financial strain, the overwhelming majority of borrowers can continue to afford their mortgage installments.

He further stated, “Although we anticipate that a greater number of clients will experience delinquencies in the coming year, we anticipate that the figures will peak significantly below what they have been in the past.”

Customers who encounter financial difficulties should contact their lenders as soon as possible. The industry continues to offer various individualized support options to assist those in need.

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