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Price Pressure on The Horizon For The UK Mortgage Market

The latest March 2022 UK Mortgage Market Index from Fitch Ratings found that job support and payment holiday schemes have sustained mortgage performance since the beginning of the pandemic, with arrears remaining around the historical trough.

Only in buy-to-let (BTL) has there been a relative increase in arrears since January 2020, although delinquencies remain very low in absolute terms. Interest rates in residential mortgages have fallen since 2020, while BTL interest rates remain higher than for owner-occupiers.

Fitch says that the performance of the mortgage market will likely now be more affected by rising household cost pressure, with energy and transportation costs rising particularly sharply. Fitch expects real wages to fall in 2022 despite the strong labour market before returning to growth in 2023.

The report states: ‘Interest rate increases intended to curb inflation pressure will further increase costs for households with variable rate mortgages. Overall, we expect performance to remain robust as households prioritise payments of secured debt and unemployment remains low.’

However, Fitch adds: ‘Borrowers coming to the end of fixed periods may need to refinance at higher interest rates, leading to a payment shock.’

Unemployment remained stable across 2021 and Fitch has revised down its unemployment forecasts to 4.1% for 2022 and 3.8% for 2023 from its December 2021 Global Economic Outlook.
Regarding late-stage mortgage arrears, the report stated: ‘As a repossession moratorium in place until May 2021 came to an end, some foreclosure activity returned in the market, clearing some of the late-stage delinquencies accumulated during the suspension period. Since repossession activity restarted almost 2,000 properties have been subject to a possession claim being issued in one month, most of which represented a backlog of foreclosure cases halted during the repossession ban.

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