Mortgage market faces renewed rate uncertainty as households report weaker finances and other concerns
British consumer morale fell sharply last month to its weakest reading since mid-2023, according to two surveys published on Monday, as the conflict in the Middle East weighed on household expectations.
The downturn comes as investors brace for higher inflation in the UK, already the highest among the G7. Markets have focused on the country’s sensitivity to energy prices after a surge linked to US-Israeli attacks on Iran that began at the end of February.
According to financial analytics provider S&P Global, its consumer sentiment index slipped to 42.3 from 44.1, the lowest level in 33 months. Similarly, consultancy firm Deloitte reported a decline, with its quarterly confidence measure falling to its weakest since the third quarter of 2023.
Both surveys pointed to a worsening view of household finances and job security. For mortgage advisers, the shift matters because confidence can influence purchase decisions, remortgage behaviour and appetite for fixed-rate products.
Renewed geopolitical tension added to the unease on Monday after the US said it had seized an Iranian cargo ship accused of attempting to breach its blockade. Iran said it would retaliate, raising concerns that a ceasefire between the two countries could fail.
“Many (consumers) were already facing a squeeze on their household budgets at the start of the year with the slowing of wage growth and a cooling jobs market,” said Céline Fenech, consumer insight lead at Deloitte UK. “For consumer sentiment and spending to improve, households will want to see a more certain outlook for the economy.”
Signs of softer conditions are also emerging in housing. Rightmove said asking prices rose by 0.8% month-on-month in April, a smaller increase than is typical for a period when activity often picks up.
“With mortgage rates remaining elevated due to the war in Iran, it's not a surprise that price growth is proving strongest in parts of the market less exposed to higher borrowing costs, such as top-of-the-ladder homes, while sectors more exposed to interest rates are seeing slower momentum,” said Colleen Babcock, property expert at Rightmove.
The backdrop is likely to keep attention on the Bank of England’s next steps. S&P Global said more than half of households expect the central bank to raise interest rates. Earlier this month, the Bank’s governor, Andrew Bailey, cautioned that investors may be moving too quickly in pricing in further tightening.
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.
