Household confidence rose overall in Q2 2024 but nervousness about employment prospects, and a “wait-and-see” attitude to the election, dampened the appetite to take on larger purchase commitments, UK Finance’s Household Finance Review for Q2 2024 reports.
Consumer spending data showed weak annual growth, but with continuing strength in the travel sector. Following continuous contraction since the start of 2023, the strength in mortgage applications seen late last year finally translated into lending growth in Q2 2024.
However, forward data suggest that further growth in completions through the second half of 2024 is uncertain.
Many new borrowers are still taking out mortgages over longer terms than in the past. Whilst customers may choose to take longer terms for various reasons, the recent spike looks to have been primarily in order to stretch affordability to get the loan size they need.
But despite the rise in longer term borrowing, there are currently very few households still paying mortgages in retirement. Where lending does extend into later life, FCA affordability rules ensure that customers are able to maintain existing pension contributions alongside their mortgage before retirement, as well as to continue to pay any remaining mortgage when they do retire.
RATE SHOCK HAS PASSED
The extent of ‘rate shock’ for customers reaching the end of their fixed-rate deals and looking to refinance appears to have passed its peak. Even at the height of this “rate shock”, customers were refinancing at rates well below the stressed rates which their lender had previously assessed would be affordable.
As the rate of inflation continues to fall, the unprecedented running down of savings seen through the last year, to meet higher expenses looks to have ended, and savings levels are starting to rise again. At the same time, households have largely managed to avoid reliance on overdraft or card borrowing to cover budgetary shortfalls through the cost-of-living crisis.
TO EARLY TO SAY
Mark Harris, SPF Private ClientsMark Harris, chief executive of mortgage broker SPF Private Clients, says: “The looming general election and high interest rates put a dampener on activity in the second quarter of the year, as buyers and sellers sat on their hands and avoided making big financial decisions.
“That said, the increase in mortgage applications at the end of 2023 and beginning of 2024 on the back of lower mortgage pricing, did feed through into annual growth in lending. First-time buyer numbers improved by 19%, while mover numbers increased by 15% compared with the same quarter last year.”
But he adds: “However, as mortgage rates rose in the second part of Q1 and into Q2, applications tailed off, with UK Finance forecasting weaker completion numbers in the latter part of the year. Current lower mortgage pricing, with a number of lenders launching sub-4% f5-year fixes, will take a while to feed through into completion numbers.
“Affordability remains an issue, with a noticeable increase in borrowers opting for longer mortgage terms in order to keep monthly costs down.
“The worst of any rate shock may be behind us with the Bank of England cutting interest rates in August, with the expectation that there are more reductions to follow, but borrowers will still have to get used to paying more for their mortgages.
“The good news is that mortgage arrears were unchanged in Q2 after six quarters of increases. While it is too early to say whether arrears have peaked or plateaued and with a difficult Budget on the horizon, there is still some uncertainty ahead.”
