Household confidence in the housing market recovered throughout Q3 but remains downbeat overall, UK Finance has reported.

In its household finance review, the banking body also found that confidence in the finance market fell away sharply in October, with household spending contracting by 0.4% in Q3, the fastest pace of decline for a year.

This is despite parts of the economy seeing some modest growth in GDP in the first six months of the year.

Mortgage lending also remained weak in almost every sector of the market, UK Finance said, but the body added that “this can be seen most acutely in the tighter end of affordability, in particular lending at higher LTVs and income multiples”.

Customers with lower incomes are currently putting down deposits equal to twice their annual income to meet affordability requirements.

However, mortgage refinancing remained strong in Q3, with affordability pressures and competitive retention deals driving more customers to take a product transfer with their existing lender.

Chair of The Open Property Data Association, Maria Harris, commented: "With more mortgage holders rolling off historically low rates and the continued pressure on household spending, having accurate and trustable data about our property has never been more important. Housing transaction volumes rely heavily on consumer confidence so the continued contraction in house purchase lending, and challenges to affordability, look likely to drive further delays in purchase or home moving decisions.”

The UK Finance report stated that household savings continue to be run down as people use their savings to cover increased monthly bills. UK Finance suggested that there is no sign of increased reliance on overdrafts or credit cards to cover any shortfalls in budgets.

Furthermore, retail sales saw a larger than expected contraction at the end of Q3, but card spending held up with ongoing strength in the travel sector, which has seen sales continue to rise despite cost-of-living pressures increasing.

UK Finance said that the absence for holiday opportunities as a result of the pandemic has helped push up card spending.

However, discretionary spending has fallen away and continues to be a consistent feature amid the cost of living pressures of the past two years.

UK Finance also warned that many retailers are bracing for the possibility of “muted activity over the run-up to Christmas”, compared to normally elevated spending patterns through December.

Chief revenue officer at Phoebus, Adam Oldfield, added: “When we look at the contraction in retail sales, and even this week we heard that the Christmas rush has been more subdued, which shows a level of caution as borrowers assess the impact of further borrowing. Nevertheless, a huge number of properties have come onto the market in the last few weeks, so perhaps the start of 2024 will be more buoyant than the end of 2023.”

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