Many British people foresee an awful lot of financial pain and disrupted life plans with soaring interest rates for mortgages that have reached obscenely high levels. Many of them secured their latest home financing deals a few years ago when rates were at record lows. About 2.4 million fixed-rate deals will expire between now and the end of 2024. Those with that type of mortgage will bear the brunt of an enormous jump in rates.
The best solution people resort to is a base-rate tracker mortgage, where the interest rates move in line with the base rate. People were hoping the interest rates would start coming down, but on June 22, the Bank of England put up the base interest rate for mortgages to 5% – a 15-year high. It resulted in the 13th consecutive hike in interest rates since December 2021.
Grim Consequences of the Current Mortgage Crisis
The worsening mortgage rates in England have dealt a harsh blow to families across the country and especially in the capital and wider south, who have very large outstanding mortgages. The mortgage crisis has completely changed couples’ life plans for their family and will severely impact their careers and earnings.
Some homeowners have experienced a monthly repayment increase of 50% since they took out the mortgage when their two-year fixed-rate mortgage expired. In terms of amount, many families have to pay an additional £600 per month or £7,200 annually for their new mortgage repayments. At the same time, their energy bills, council tax, cost of child care, and house insurance are all going up as well.
According to one think tank, the increase in cost for the average household for remortgaging next year can be as large as £2,900. There are many other repercussions, including the following:
1. The extra money each month that couples hoped to save will have to go towards increased mortgage interest costs. They are using savings to keep them ticking over.
2. They keep an eye on expenses and cut out non-essentials. They now go to the supermarket just a couple of times a month to reduce costs as much as possible.
3. The value of houses has gone down, and house prices may fall by up to 10%.
4. Because of the high costs of borrowing, some families sell their homes in East London and move to the north of the country to a cheaper area.
Reasons for the Mortgage Rate Hike in the UK
The Bank of England and Downing Street believe that slowing down the economy is the appropriate action to take to bring down inflation, and it is a price worth paying. The Bank of England is raising interest rates in response to the highest rates of inflation since the early 1980s, which in May stood at 8.7% against the government target of 2%.
Many of the causes of this inflation have been outside of the government’s control. They are driven in part by disruption in the global supply chain due to COVID and the Russian invasion of Ukraine on energy prices.
Among the G7 nations, however, the UK has the highest inflation, largely due to the extremely tight jobs market and high numbers of vacancies, which have been inevitably affected by Brexit.
What British Homeowners Should Do
There are a few things you can do now if your deal is not ending for another year or so. Below is a guide you can refer to.
1. If your deal is ending in 5 months:
You can reserve a deal now and wait to see how things develop. If interest rates have increased, you have at least locked in at a lower rate, though it may not be as great a result as you desire.
Fixed mortgage rates in England are still the best option for people looking for stability.
2. If your deal is about to end:
If your deal is ending in the next few weeks, expect tough times. You’re probably in for a big hike in payments.
Ask your broker or lender for advice they can offer. You may be allowed to extend the length of your England mortgage, reducing your monthly payments. It will take you longer to pay off the loan, and you will pay more interest. See if this is a price worth paying. In some cases, your lender may agree to move part of your England mortgage over to interest-only, so you clear just the interest that accrues on that part, cutting monthly repayments in the process.
If you have some spare cash savings, you may consider using some of it to reduce what you owe. When there are restrictions on overpaying, you may want to put as much into savings as possible so you become ready for the inevitable higher bills.
You can ask your England mortgage lender for a payment holiday. If they offer you a break, which would typically be about six to 12 months, treat that as a last resort. You may also try to follow much of the above advice.
3. If you are on a base-rate tracker:
Your payments will almost certainly be going up over the coming months if the predictions come true. Talk to your lender or broker to find out what they can offer to help. Moving to a fixed-rate deal may not be that tempting, but at least you’ll know that your monthly payments are fixed for the period of the deal. It will make budgeting easier.
Predicting the Future of Mortgage Rates in England
While Tories are split on bailout calls and whether to intervene, perhaps with tax relief on mortgage interest, Jeremy Hunt, the Chancellor, has ruled out aid to homeowners. The government has summoned banks for mortgage talks and is leaning on banks for them to do more for those struggling.
Some experts predict that the Bank of England will raise interest rates four more times on top of the 13 just recently. The cost of new fixed-rate mortgages is rising, and interest rates are predicted to remain high for the foreseeable future – it could be near 5.75% or up to 6% by the end of the year.
Amid the cost-of-living crisis, millions of UK renters are being squeezed by landlords, demanding higher mortgage costs from their tenants and contributing to record rent increases.
Final Thoughts on the Increasing Mortgage Rates in England
As if your struggle to pay off your mortgage loan and the long-term real estate commitment you’re making to owning your home were not overwhelming enough, record interest rates and inflation are spelling real pain for homeowners like you. And a few signs of relief are on the way. While there are very limited actions we can take to ease out of the crisis, we should all be in this together. We should have trust in the government’s approach to combating inflation. By dealing with mortgage pains, living with less free cash, and spending less, we could help cool down the economy and defeat inflation, which should eventually bring our economy and society back to normalcy.
