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An economic crisis with rising inflation and interest rates – which, thanks to the Bank of England, have risen 0.75% to 3%, the fastest since 1989 – is on a collision course with the housing crisis. We may still be witnessing the most devastating chapter of the housing crisis.
Buying a home is the biggest purchase most people will make in their life. This is more true than ever, as mortgage lending is now widespread and home prices have reached all-time highs over the past decade.
Furthermore, housing costs, in the form of rent or mortgage, are also the biggest expense for most people.
The impact of rising mortgage rates on low-income homeowners – and indeed private renters who may face rising costs from their owners – is severe. Anecdotally, private tenants regularly report rent increases of up to 30, 40 and even 70 percent that they cannot afford.
Poverty experts are very, very concerned that homeowners are also being pushed below the poverty line.
Research by Citizen’s Advice found that one in four people simply cannot afford a £ 100 increase in their monthly mortgage payments. They fear nearly half will struggle if they go up by £ 250.
This scenario is likely. The Joseph Rowntree Foundation (JRF) – an independent charity working to fight poverty – warned that mortgage interest rates of 6% can reduce monthly housing costs for families who buy a mortgage, for those who refinance, who lower rates fixed and for anyone who currently has a tracker mortgage or a standard variable rate mortgage (SVR).
Furthermore, the JRF has warned that if rates remain so high, another million people and 300,000 families will be dragged into poverty in the coming years.
Lenders are likely to pass the Bank of England rate hike to homeowners. Those with SVR and tracker deals will see their monthly payments increase immediately, while those with fixed income deals will experience a sudden spike at the end of that term.
If you have a £ 300,000 mortgage and your interest rate ranges from 5.5% to 6.5%, your monthly mortgage payment ranges from around £ 1,840 to £ 2,025. That’s almost £ 200 a month and over £ 2,000 a month more to find.
UK Finance, a commercial organization, estimates that 1.8 million people will experience their fixed portion in 2023.
The economic environment for all of this is bleak. The Bank of England also expects a “prolonged recession”
Those who study inequality and propose ways to solve it bang their heads against the wall in frustration.
Jonthan Webb is a senior research fellow at the progressive think tank Institute for Public Policy Research (IPPR). “Unfortunately, this current crisis has been preparing for a long time. For too long, politicians have done little to counter the rise in house prices, “he said after the Bank of England rate hike,” he says.
“These rising prices have forced people to borrow more and more money to try and fulfill their dreams of home ownership. The end result is that we have become a nation of increasingly indebted families.
“This year, the collective outstanding value of all residential mortgages was £ 1.6 trillion. With interest rates now on the rise, the unsustainable growth of the UK housing market is facing the day of reckoning, with potentially disastrous consequences for many mortgage-backed households.
Mortgage brokers are also frustrated, noting that this will have long-term consequences.
Sabrina Hall is a broker with 25 years of experience. “There are now fewer high-value mortgages available,” she said, “but my main concern is that if we go into a recession for this long, the Bank of England will have to cut rates again. [to encourаge spending].
“It means that some people will keep these higher rates for several years [аfter locking in to the rаtes todаy]. “
In the Bank of England’s announcement of the interest rate hike, there was an implied indication that the need to raise interest rates further will decline in the coming months. So maybe next year the mortgages will be cheaper.
But in the meantime, there is financial uncertainty. And for low-income homeowners, who are already overwhelmed, and private renters, who are bearing the brunt of their owners’ rising mortgage costs, there is very little support: no mortgage rate cuts for the former and no protection from rent increases or subsequent evictions.
This is the first time in recent history that we have had such a severe housing crisis at a time of severe economic upheaval with so little protection for the most vulnerable. It’s a perfect storm.
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