For some reason, seemingly random materials are applied to random objects.
The issue occurs in the viewport and in the PIE however, clicking on the affected object in the viewport fixes the issue until scene re-loads.
Action that re-load the scene such as restarting the engine, playing the level, cause the issue to appear randomly.
When I build the level I get a bunch of errors about UV overlapping however to my understanding this should not cause this type of issues.Example of the above mentioned errors.
That said models affected are the ones that come with the UE 5.3 by default and have perfectly fine UV maps, such as starter content chair
And then there are 3rd party assets like this wall from Unreal Sensei tutorial attachment files which, for whatever reason have chair texture mapped over it.
The wall in example above previously would usually show Black Alder tree trunk material mapped but after deleting all the Black Alder trees from the level, Chair material was applied to it.
When opening the affected assets in the Edit window, issue does not occur and assets appear without an issue.
Assets used in the level are Castle Environment which comes from Unreal Sensei tutorial and assets from Quixel Bridge such as Nordic Beach Rocks, Icelanding Volcano Terrain and Megascan Black Alder.
Video further depicting of the issue: Example 1, Example 2.
Hardware:
GPU: RTX 2070 Super
CPU: AMD Ryzen 7, 5800X
RAM: 32 GB