Mortgage lending declines sharply in Q3

Affecting both first-time buyers and home movers, the drop has been impacted by affordability challenges – stemming from the significant gap between house prices and wages, as well as higher interest rates and the cost of living.  

There was, however, a gradual rebound in consumer confidence – although it still remains established in a firmly negative position. More recently, the trade body says the confidence indicator has been volatile in the fourth quarter of this year – with some improvement in November helped by more encouraging news on the inflation outlook.  

Meanwhile, consumer spending remains in a contradictory scenario – as where retail sales values ascended, underlying sales volumes experienced a decline. This divergence reflects the delicate balance between fragile consumers and escalating cost pressures.  

Additionally, the recent patterns and figures in retail activity show signs of weakness, suggesting the possibility that more households have run through those savings built up through the pandemic and now cannot afford to maintain expenditure at current levels.  

Going forward, UK Finance said an important trend to consider is the continued erosion of household deposits held with retail banks. It added: “Deposit levels at the end of the quarter were three percent lower than the previous year, accelerating from the contraction observed in the preceding quarter.  

“Despite the decline overall deposit levels remain significantly elevated, reflecting the cushion built up during pandemic-related social restrictions. Likely related to the running-down of these excess savings, the levels of overdraft debt over the quarter continued to decline, even as cost pressures persisted.  

“However, if overdraft debt begins to tick up over the coming months, this would indicate an deepening of financial stress levels. 

“It’s also crucial to note that savings are not evenly distributed across households. Although inflation is on the decline and wage growth is currently strong, the impact of cost-of-living and interest rate pressures is particularly acute for lower-income households, which are less likely to have accumulated additional savings.”  

Overall, the third quarter household finance landscape is marked by a delicate interplay of recovery challenges, with the trajectory of consumer confidence, spending patterns and borrowing trends far from certain in the final quarter of this year.