The US housing market crisis of 2008/9 brought the global economy down and led to nearly 10 million homeowners losing their properties. However, the US market now appears stable while mortgage borrowers and banks in other countries face uncertain times. US consumers benefited from the housing market recovery as they were able to lock in favorable rates through 30-year fixed-rate mortgages amid near-zero interest rates. As a result, 90% of US households pay less than current rates on their mortgages.
US households are now paying as much interest on other types of debt as they are on their mortgages, a first in history. Despite this, the US residential property market remains stable with foreclosure filings only at .026% of all households, a drastic improvement from the peak levels during the Great Recession. However, home sales have declined due to the high cost of buying a new property and many lenders are earning less on mortgages than they are paying for deposits.
In contrast, most foreign markets have more adjustable-rate mortgages and shorter-duration fixed-rate mortgages than the US, making borrowers more susceptible to interest rate increases. High inflation is causing central banks to keep rates high, impacting cash-strapped homeowners who are not experiencing job losses but are facing rising housing prices, slow income growth, and high interest rates. The housing affordability gap has widened significantly in the past three years.
In the UK, the household debt-to-income ratio remains high and mortgage rates have risen sharply, putting many borrowers at risk of falling behind on their payments. Lenders in various markets face the possibility of customers being unable to meet loan repayments and potentially losing their homes, as most home loans are not guaranteed by state bodies. Governments may need to intervene to prevent widespread financial distress among voters and loss for lenders.
Banks should prepare for potential collaboration with governments to assist distressed homeowners and explore innovative solutions to help customers facing financial challenges. Some banks, like NatWest in the UK, are already providing tailored solutions and support to mortgage customers in need. The current situation in the housing market may lead to a new era of personalized and empathetic banking, with banks using data, technology, and behavioral economics to address individual customers’ needs more effectively. This crisis may prompt banks to increase digital and mobile capabilities and improve customer service in markets worldwide.
