UK house prices are on the rise again, the job market remains resilient, and inflation is moderating. However, there’s been a spike in mortgage arrears, according to Morningstar DBRS analysts in their latest housing market review.

House price growth

In Q1 2024, after four consecutive quarters of negative year-on-year house price inflation, the UK finally experienced a positive shift with the average house price increasing by one per cent compared to 2023 levels.

With rising wages, moderating inflation, stabilising mortgage rates, and slowly increasing house prices, affordability is expected to gradually improve, though it remains the main constraint on faster house price growth.

Rising arrears and repossessions

Despite the positive trends, mortgage arrears are on the rise.

Outstanding balances in arrears reached £20.3 billion in Q4 2023, a significant 50.3 per cent increase year-on-year.

While the UK, with fixed-rate loans being so popular, is less exposed to the cost-of-living crisis than markets with more floating-rate loans, the proportion of total loan balances in arrears remains at just over one per cent.

However, the severity of these arrears has been increasing for several quarters.

Repossessions have also seen an uptick as COVID-19 relief measures have been lifted, though they remain historically low.

Loan-to-Value Ratios

The proportion of loans with high loan-to-value ratios (LTVs) has been on a continuous rise since Q1 2010 but has stabilised in recent years.

In Q4 2023, loans with LTVs over 90 per cent accounted for 5.5 per cent of gross mortgage advances, the highest since Q1 2020.

Mortgage rates have fallen since late 2023, except for new floating-rate mortgages, due to lower inflation and a stabilised bank rate.

However, rates remain high and volatile, with new rates rising by about 25 basis points in early Q2 2024 following the Bank of England’s announcement of prolonged higher interest rates.

Will we see house prices rise in 2024?

With tight financial conditions and persistent high inflation, the UK economic growth has slowed, leading to a weak recovery outlook.

House prices are still expected to stabilise and show modest increases in 2024, supported by low unemployment, moderating inflation, and strong wage growth.

However, it will not be entirely positive as borrowers are transitioning from favourable fixed rates and adjusting to higher mortgage costs.

Speak to us to find out more about the housing market forecast for 2024.