UK
house
prices
are
rising
again,
the
jobs
market
is
resilient
and
inflation
is
moderating.
But
there’s
been
a
spike
in
mortgages
in
arrears,
say Morningstar
DBRS
analysts
in
their
latest
outlook
on
the
housing
market.
In
the
first
quarter
of
2024,
after
experiencing
negative
house
price
inflations
on
a
year-on-year
basis
for
four
consecutive
quarters,
the
UK
saw
a
positive
percentage
change
in
house
prices.
The
average
UK
house
price
increased
by
1%
in
Q1
2024
on
2023
levels.
With
wages
rising,
inflation
moderating,
mortgage
rates
stabilising,
and
house
prices
slowly
increasing,
affordability
will
gradually
improve.
Affordability
is
the
key
constraint
of
faster
house
price
growth.
Arrears
and
Repossessions
But
the
value
of
outstanding
balances
with
arrears
was
£20.3
billion
in
Q4
2023,
a
drastic
increase
of
50.3%
on
a
year-on-year
basis
and
9.2%
on
a
quarter-on-quarter
basis.
The
cost-of-living
crisis
has
affected
arrears,
but
markets
with
more
fixed-rate
loans
(like
the
UK)
are
less
exposed
than
markets
where
floating-rate
loans
are
more
common.
Regardless,
the
proportion
of
total
loan
balances
with
arrears
in
Q4
2023
is
just
1.2%.
However,
when
analysing
by
degree
of
severity,
we
find
it
is
somewhat
alarming
as
the
balances
on
cases
in
arrears
as
a
percentage
of
total
loan
balances
have
shown
a
continuous
increase
for
last
few
quarters.
There
is
an
uptick
in
repossessions
as
various
relief
measures
related
to
repossessions
applicable
during
the
COVID-19
pandemic
have
been
lifted,
but
the
level
still
remains
at
a
historic
low.
LTVs
Are
Rising
Too
There
has
been
a
continued
rise
in
the
proportion
of
loans
with
higher
loan-to-value
ratios
(LTVs)
since
Q1
2010,
but
it
has
stabilised
in
recent
years.
Loans
with
LTVs
exceeding
90%
represented
5.5%
of
gross
mortgage
advances
in
Q4
2023,
the
highest
observed
since
Q1
2020.
Mortgage
rates
have
fallen
since
the
end
of
2023
(with
the
exception
of
new
floating-rate
mortgages),
as
a
response
to
the
lower
inflation
rate
and
stabilised
bank
rate,
but
they
remain
at
high
levels
and
volatile.
The
new
mortgage
rates
since
the
beginning
of
Q2
2024
have
increased
by
approximately
25
basis
points
as
the
market
digested
the
news
of
higher
interest
rates
for
longer
from
the
BOE.
Will
House
Prices
Rise
in
2024?
Tight
financial
conditions
and
persistent
high
inflation
have
slowed
down
growth
of
the
UK
economy.
Our
outlook
is
for
a
weak
recovery.
We
still
expect
UK
house
prices
to
stabilise
and
show
a
modest
increase
during
2024.
A
number
of
factors
support
this,
including
low
unemployment,
moderating
inflation,
and
strong
wage
growth.
However,
it
will
not
be
positive
all
around
as
borrowers
are
still
rolling
off
attractive
fixed
rates
and
still
adjusting
to
higher
mortgage
costs.
This
will
lead
to
a
continued
increase
in
arrears,
which
remain
at
the
highest
point
in
the
past
six
years
On
the
political
front,
the
UK
will
hold
general
elections
at
the
beginning
of
July,
which
could
lead
to
a
change
in
government
and
heighten
some
degree
of
uncertainty
over
policies.
This
is
an
edited
version
of
a
longer
Morningstar
DBRS
report
on
the
UK
residential
mortgage
market. Lorenzo
Coccioli,
Richa
Pandey,
Mudasar
Chaudry,
Ketan
Thaker,
Christian
Aufsatz
were
the
analysts
on
the
report.
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