Fears Rise Among UK Landlords as Mortgage Rates Soar

Rates on some very common UK home loans rose to 15-year highs on Tuesday as the Bank of England retightened inflation, fueling fears among British homeowners that their monthly payments could see fly away.

In a country where the vast majority of mortgages are fixed for five years or less, requiring homeowners to periodically sign new credit at market prices, the average two-year rate hit 6.66% on Tuesday, a record since 2008, according to the financial data site Moneyfacts.

The rate on Tuesday exceeded a peak reached in October after the financial storm caused by the short-lived government of Liz Truss, which had panicked the markets with a budget with massive and unfunded expenditure, soaring the rates of borrowing bonds treasury and, by extension, mortgage loans.

“I know things are difficult for many families,” Prime Minister Rishi Sunak reacted on Tuesday, adding that his priority was to bring down inflation – currently at 8.7% in the country, the highest in the G7. – at the origin of a severe crisis in the cost of living.

Testimonials from British owners are piling up, often anonymously, on self-help groups on social networks, some saying they are “panicked”, or even “terrified” at the prospect of seeing their monthly payments increase by several hundred pounds.

There is currently “a significant increase in rates for customers”, of about 235 pounds (approx. 267 francs) per month on average, or about a third of their initial payment, for owners who sign on a new rate, describes Henry Jordan, of the Nationwide real estate development and credit company.

But so far, the company has “not yet seen a significant increase in delays” in payments, he added, speaking to a parliamentary committee on Tuesday alongside other heads of government bodies. ready, who say they see the same thing.

The British government announced measures at the end of June to relieve British homeowners, including offering more flexibility to reduce their monthly payments by increasing the duration of their loan or paying only interest for a certain period of time.

But the worst could be yet to come, as mortgage rates are tied to the Bank of England’s key rate, which raised it last month for the 13th time in a row. And the market expects its rate hikes to continue.

“This should make the situation worse for mortgage holders, especially since 700,000 loans are due to expire in the second half of 2023 alone”, predicts Matthew Ryan, analyst at Ebury. “Higher mortgage rates will contribute to weaker economic activity at the start of 2024,” he said, and the UK economy could well slip into recession in the first half of next year.