Moody’s have cobbled together a report on the UK housing market and it’s risks to the economy and it says that a slowdown in the housing market, due to mortgage affordability, may harm growth and undermine banks asset quality but would not be enough to derail the economy or cause “significant losses” for UK banks.
“Our analysis of the sensitivity of the economy to increases in interest rates and house prices suggests that, while a steeper slowdown in the housing market would lead to a slight slowdown in GDP growth over two to three years, it is unlikely to change the economic outlook significantly,” says Marie Diron, Senior Vice President in Moody’s Credit Policy unit.
They go on to note that the low proportion of high LTV loans will offer some protection to banks and households should the market suffer a downturn. However, they say that the current high levels of debt gives household limited capacity to absorb any negative shocks to income and employment.
They’ve got the situation pretty much spot on. The next year or so is going to be a tightrope walk for households who will have to balance their finances as the economic recovery gathers pace and interest rate rise creep ever closer.
