How a Recession Could Affect Your Mortgage

According to recent figures from the Office of National Statistics (ONS), the UK fell into a recession for the final three months of 2023. Here, we look further into this to find out what it can mean for the average person with a mortgage¹.

What is a recession?

The Office for National Statistics (ONS) publishes figures for the UK’s Gross Domestic Product (GDP) – which is the value of all the goods and services produced by the UK for a given time period.

The GDP figure would typically rise and fall over time, as incomes rise or the economy shrinks, for example. ONS data for 2023¹ has shown that the GDP figure has fallen during the last two quarters of 2023, which is officially classified as a recession.

Understanding the impact on mortgages

The economic landscape has shifted, leading to potential changes in mortgage rates, housing values, and the broader property market. The Bank of England’s measures to combat inflation have resulted in interest rates increasing to 5.25%, impacting many homeowners with variable or tracker mortgages². However, there might be a silver lining as hints of future rate cuts could potentially alleviate some pressure for those looking to remortgage or secure new mortgage deals.

What this could mean for you

• For Prospective Homebuyers: The current situation presents a mixed bag. While higher interest rates may seem daunting, the potential for rate cuts and a decrease in housing prices could create unique opportunities. It’s crucial to assess your long-term affordability and consider locking in rates if you find a suitable deal.
• For Existing Homeowners: If your mortgage deal is nearing its end, or you’re on a variable rate, now is the time to review your options. Chances are that rates have increased since your preview mortgage deal, however they are currently below the highs seen in late 2022. Fixed-rate mortgages may offer stability on monthly payments, although tracker mortgages can offer the chance to see immediate reductions in monthly payments should Bank of England Interest Rates fall as 2024 progresses.
• For Those Looking to Remortgage: Aside from homeowners remortgaging when their existing deals come to an end, there may be other reasons to remortgage, whether to access equity in a property or release funds to pay off existing debts for example, however with an uncertain market, some may wish to wait longer for greater clarity on what’s proving a challenging and uncertain market to date.

Strategies to consider

• Review Your Financial Health: Take a comprehensive look at your finances, considering your income, debts, and emergency savings. Understanding your financial position is critical to making informed decisions.
• Stay Informed: Keep up-to-date with the latest economic news and mortgage rates. Awareness of market trends can guide your decisions and timing when considering remortgaging or purchasing.
• Seek Professional Mortgage Advice: Our role is to support you through these uncertain times. Whether you’re contemplating a new mortgage, looking to remortgage, or simply seeking reassurance about your current situation, we are here to offer expert advice tailored to your individual needs.
• Consider Additional Support: If you’re experiencing financial difficulties, several resources are available. Engaging with organizations like Citizens Advice can provide guidance on managing debt and financial planning.
• Stay Protected: In these unpredictable times, it’s worthwhile protecting the things that matter to you, and how long you and your family can maintain your standard of living should the worst happen – whether it’s a loss of income, a critical illness or worse – having protection in place can give valuable peace of mind when you need it most. Speak to us to find out more about how we can assist.

Final Thoughts

While the economic forecast may seem daunting, opportunities exist for informed and strategic decision-making. Our commitment to you, our valued client, is unwavering. We are dedicated to providing you with the support and advice needed to navigate these challenging times confidently.

Together, we will explore all avenues to ensure your mortgage and protection arrangements are as resilient and beneficial as possible. Please don’t hesitate to reach out for a consultation or with any concerns you might have.

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.

Sources

1. Office for National Statistics (2024) OGDP first quarterly estimate, UK: October to December 2023.Available at: https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpfirstquarterlyestimateuk/octobertodecember2023[Accessed 26 Feb 2024]

• Bank of England (2024) Interest rates and Bank Rate. Available at: https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate [Accessed 26 Feb 2024]

All the information in this article is correct as of the publish date 29^th February 2024. The opinions expressed in this publication are those of the authors. The information provided in this article, including text, graphics and images does not, and is not intended to, substitute advice; instead, all information, content and materials available in this article are for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information.