At the end of 2023, the UK economy entered into a recession, following two consecutive quarters with negative economic growth. The UK GDP (gross domestic product) fell by 0.3% between September and December. (According to the office national statistics.)
At The Levels Financial, we know what a strain a recession could be on you and your mortgage payments. In this article, we will be covering the following topics:
- What is a recession?
- How will a recession impact mortgage rates?
- How else would a UK recession affect you?
- Will a recession happen in 2024?
What Is A Recession?
A recession is when an economy, normally a country’s economy, suffers two consecutive quarters with “negative economic growth”. Essentially, a recession is when the economy sees a decline in performance and output and doesn’t see a growth in finances over six months.
The figures from ONS (Office for National Statistics) showed that the economy contracted by 0.3% in the final quarter of 2023. Which meant that the UK fell into a recession at the end of last year.
GDP is a key indicator of how well an economy is doing and can roughly equate to how much economic growth a country produces overall. When GDP rises this is indicative that businesses are thriving and people have higher disposable incomes. If the GDP falls or remains low, then it highlights that the country’s economic growth is declining or stagnating.
What are the main causes of a recession?
Recessions are often caused by a chain of events within the economy, such as:
- Supply chain disruptions
- A financial crisis
- A world/social event
- Triggered after the inflation process
With the outbreak of the Ukraine and Russia war, conflict in the Middle East and the COVID-19 pandemic, the UK has been working through some significant world events which have had a knock-on effect on supply chains and financial markets.
The UK has also been subject to various base rate increases, which we cover in more detail, here:
- Inflation rate changes – what this means for mortgages
- August 2023 interest base rate rising – how can this impact you?
- Base rate increases to 5% – what this means for you
- March’s base rate increases & what it means for you
When inflation and interest rates increase, it is done to slow the economy and bring down inflation overall. However, increases in inflation and interest rates also lead to a reduction in spending which can lead to profit loss and layoffs.
How Will A Recession Impact Mortgage Rates?
Recessions often have a substantial impact on both the housing market and mortgage rates. However, depending on whether you’re buying or selling, these effects can be either positive or negative. Since 2021, the Bank of England has increased the base rate fourteen times, in a bid to reduce inflation. Recession may see the Bank of England cutting the base rate from its current 5.25%.
A recession will sometimes decrease the value of properties. A property value will fluctuate depending on various factors, including:
- Employment rates
- Demand
- Financial crisis and people’s affordability
- Location – properties in affluent and sought-after locations may be more resilient compared to others
Previous recessions have shown that house prices will often fall during periods of prolonged economic dips which are often paired with a rise of unemployment. However, while housing prices may decrease, so too is the cost of borrowing.
To counteract the economic dip, banks may lower their interest rates making getting a mortgage or remortgage more accessible. Which could help some first time buyers get onto the property ladder easier than previously.
How Else Would A UK Recession Affect You?
When a country goes into recession, the impact of the new financial state may not impact you or your family for a matter of months, or even years. But, it can affect you, even after the economy starts to recover.
While the 2023 rescission is by no means as severe as the 2008 financial crash, the recession could still impact you:
- Risk of job loss
- Promotions and pay rises may be harder to come by
- It may be harder to move jobs as job vacancies dry up
- If you’re a business, you may need to ‘let go’ of staff
- Banks are less likely to lend you money
- Local services and shops may close down
- People may have less disposable income to spend
Recessions could impact your ability to pay back your mortgage, pay off debts, increase your credit score or even save for a deposit. So if you’re looking to buy a house, move homes or remortgage, you may find it more difficult during a recession. For more information and helpful tips:
- 5 ways to boost your credit score with our Yeovil mortgage advisors
- How to save for a mortgage in the cost of living crisis
- What can affect your credit score?
- What can affect your credit score?
Will a recession happen in 2024?
According to the British Chambers of Commerce economic forecast, they are expecting the UK’s economy to grow year on year until the end of 2026. While we dipped into a ‘technical recession’ at the end of 2023, the GDP rose again at the start of 2024 and forecasters believe we exited the recession within the first quarter of 2024. With growth revised to increase from 0.5% to 0.7% in 2024 and 2025.
For more information or to see our predictions for mortgage rates in 2024, see our blog post ‘looking ahead to mortgage rates in 2024’ or contact our team of advisors at admin@thelevelsfinancial.co.uk or call us on 01458 772 040.
Important information:
- You may have to pay an early repayment charge to your existing lender if you remortgage.
- If you do not keep up with your remortgage repayments your home may be repossessed.
- A fee may be included for mortgage advice. The actual mortgage amount you pay will differ depending on your circumstances. Fees can be up to 1%, but typically a fee is 0.3% of the borrowed amount.
