Karim Haji, Global and UK Head of Financial Services at KPMG, comments on the recent Money and Credit data from the Bank of England.
Karim noted that mortgage approvals rising for the fifth month in a row shows the housing market recovery “is still moving in the right direction.”
However, positive momentum has been “achieved in spite of ongoing affordability challenges and we’re unlikely to see a meaningful and sustained improvement in market conditions until the Bank of England starts to bring interest rates down.”
Karim further noted that February’s faster-than expected fall in inflation “could offer the relief many homeowners and potential buyers have been waiting for.”
He added that if the Monetary Policy Committee responds “to a brighter economic outlook by cutting interest rates at its next meeting in May, mortgage providers should follow suit, and those holding out for a better fixed-rate deal will spring into action.”
He also mentioned that looking further ahead, falling inflation and interest rates “will not solve the affordability issues that continue to dog the UK housing market. Insufficient supply will continue to drive demand and push house prices up, making it harder for first time buyers to get on the ladder.”
He further noted that the cost of living remains high, but “a drop in consumer borrowing in February signals falling inflation is starting to feed through to cost of day-to-day expenses.”
However, default rates remain high and it “is critical that lenders remain ready to support customers that are struggling to pay their bills,” he concluded.
Moreover, the current global economic outlook remains fairly uncertain due to a range of political and socioeconomic events. As we head further into 2024, we can expect more volatility in capital markets which could impact the real estate / property market. The cost-of-living crisis also has the potential to become worse, depending on global economic activity.