But recent inflation slowdown has helped Brits live within their means
Spending on rent and mortgages in the UK increased by 6.3% year-on-year in May, surpassing April’s 3.6%, according to data from Barclays Property Insights.
The rising costs of household bills, such as council tax and broadband, are straining finances, but falling inflation and energy prices are offering some optimism.
Despite the year-on-year rise, the month-on-month difference in housing costs was marginal at -0.01%. This suggests that consumers may not feel significantly worse off in the short term, especially with the decrease in the Ofgem energy price cap in April, which led to a 12.5% drop in consumer spending on utilities in May.
Consumer confidence has been impacted, with many Brits feeling the pressure of rising household expenses. However, 62% say that the recent slowdown in inflation has helped them live within their means, and 56% feel more confident in their household finances. Confidence in the UK housing market rose slightly from 25% to 27% last month.
For first-time buyers, barriers to homeownership remain high. Only 22% of 18- to- 34-year-olds believe that owning a home is a realistic financial goal. The cost of a deposit is cited as the biggest obstacle by 30%, while 18% are delaying their entry into the property market due to high interest rates. Concerns about lifelong debt also deter some young people, with 19% worried that mortgage repayments would extend into retirement.
Preferences for renting are growing, with 15% of renters valuing the flexibility it provides, and 12% preferring to rent due to low confidence in the housing market. Among those who have purchased property, 57% of over-55s described their first home as affordable compared to their income, while only 19% of younger people feel the same. Additionally, 19% of 18- to 34-year-olds received financial help from their parents, compared to 10% of over-55s.
Home improvement spending showed signs of recovery in May. Although furniture stores continued to decline, their drop was the smallest since last August at -2.3%. Home improvement and DIY stores had their best performance since last September, with a -5.4 % decrease, likely boosted by the early May bank holiday.
“Our latest rent and mortgage spending figures show that, despite the encouraging signs of falling inflation, we’re not out of the woods yet,” said Mark Arnold (pictured left), head of savings and mortgages at Barclays. “With hopes of an imminent base rate cut fading, according to the latest swap rates, we’re likely to see housing costs remain high for a while longer.
“Economic instability has also magnified the challenges faced by first-time buyers over the last few years, leading many to feel that homeownership is an unattainable goal, particularly among young people. While many lenders are finding creative solutions to make homeownership feasible – like Barclays’ Springboard mortgage or Kensington Mortgages’ flexible lending criteria – long-term renting is increasingly becoming the societal norm.”
Frances McDonald (pictured right), director of research at Savills, added that while historically, first-time buyer affordability issues have been dominated by one or the other, those looking to get on the housing ladder now face a combination of steep monthly mortgage payments and high deposits relative to their earnings.
“But, aspirations of home ownership remain strong, particularly as the cost of renting exceeds average mortgage payments in many locations,” McDonald said. “There were 280,000 mortgaged first-time buyer transactions recorded across 2023, of which 61% were with family assistance, up from 46% in 2022. It is this support that has meant first-time buyer numbers have remained relatively resilient.”
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