Press Release|RMBS

KBRA Releases Research – UK Mortgage and Housing Trends: May 2024 Update

20 May 2024   |   London


KBRA releases research that examines the UK mortgage and housing marketplace. In this update to our September 2023 research report, KBRA explores the financing market for house purchases across the UK, as well as current challenges and trends in the region’s housing market.

As interest rates rise and expectations for rate cuts fluctuate, the cost of financing house purchases has been volatile, but remains elevated. While house prices are declining, mortgage costs and rental prices are migrating higher. House prices remain under pressure due to affordability for both new and existing homeowners, and rents have been rising at double-digit rates. Further declines in house prices are expected to moderate as mortgage rates have declined, although at comparatively elevated levels to prior years.

Key Takeaways

  • The amount of UK residential mortgage-backed securities (RMBS) held by investors has stopped shrinking as issuers increase activity, with GBP63.3 billion held by investors. Covered bonds remain the capital market mortgage funding choice for banks with GBP72.8 billion outstanding.
  • Loan performance demonstrates signs of ongoing deterioration away from prime collateral as delinquencies increase, most notably in buy-to-let (BTL) pools. Mortgage balances in arrears across the UK are on the rise with GBP51 million of missed payments in Q4 2023.
  • Affordability pressures are easing as mortgage rates adjust to rate moves. However, joint incomes represent 60% of new lending, which is an increasing proportion of mortgage approvals and a signal that households are stretching further in order to qualify.
  • Mortgage lending improves with house purchase borrowing returning to historical norms with 61,325 approvals in Q1 2024 as first-time buyers replace declining BTL volumes.
  • House prices have recently improved with offer prices up 1.7% in April 2024. Expectations of future declines are waning with the UK Office for Budget Responsibility (OBR) cutting its forecast for house price declines to only -3% in 2024. Supply constraints persist with only 23,360 new starts in Q4 2023, a decline of 40% year-over-year (YoY).

Click here to view the report.

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About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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