Fitch Ratings expects UK mortgage performance to remain robust even though households are set to face significant cost pressures, according to a new report. Rapidly rising prices, in particular for energy and transport, will lead to a decline in real incomes in 2022. Rising interest rates, intended to curb inflationary pressure, will also increase costs for borrowers with a floating-rate mortgage.
Mortgage origination in 2021 was exceptionally strong, with particularly high activity from home movers. Data from UK Finance shows 48% of new residential lending is made on a fixed product of five years or longer, up from 28% in 2015. An increasing number of lenders have started to offer fixed-rate products for up to 40 years. Unlike the US and Netherlands, UK borrowers have historically had limited choice in fixed-rate products longer than five years.
Housing transaction volumes increased year on year, in particular ahead of stamp duty and land tax changes. The number of transactions is likely to reduce as interest rate increases and household cost pressure lead to the market cooling. Fitch expects house price growth to continue, although at a slower pace than the 10.8% recorded in 2021.
