On the mortgage front, lending for house purchases continued to decline sharply, impacting both first-time buyers and home movers. Affordability challenges, stemming from the still-significant gap between house prices and wages, as well as higher interest rates and cost of living, pose significant hurdles for prospective homebuyers, creating a barrier for many seeking to enter of move in the housing market.

A trend to monitor going forward is the continued erosion of household deposits held with retail banks. 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.

Amidst the ongoing cost-of-living and interest rate pressures we have, unfortunately, seen arrears cases rise through 2023 and this continued in the third quarter. Although the increases are of concern, numbers of customers in arrears remain low compared with historic records, with customers in arrears accounting for less than one per cent of all mortgages. Whilst we do expect to see arrears continue to increase for a period the more stringent underwriting criteria in place over the past decade, combined with extensive, tailored forbearance by lenders, will see numbers peak well below that seen in previous arrears cycles, including during the Global Financial Crisis.

In conclusion, the Q3 household finance landscape is marked by a delicate interplay of recovery and challenges. As we move into Q4 the trajectory of consumer confidence, spending patterns and borrowing trends is far from certain. The resilience of households in the face of economic uncertainties is evident, yet vulnerabilities persist. Stay tuned for our next analysis as we unravel the ongoing story of household finances in these turbulent times.