U.K. Borrowers React to Soaring Interest Rates in Mortgage Market

LOUGHTON, UK – After nearly two decades of renting in one of the world’s most expensive cities, the Szostek family has started the week with almost certainty that they will finally own a home.

Moving to London, who fell in love like a housemate, Laetitia Anne, an executive from France, and her husband, Maciej Szostek, a chef from Poland, have long dreamed of being a host. They waited years of uncertain pandemic and worked overtime in shifts to save a deposit on a three-bedroom flat in a neighborhood outside London. Their 13-year-old twins are so excited that they can finally paint walls.

That was before the UK financial markets went down, with the pound sterling briefly hit a record low against the dollar on Monday and interest rates rose so quickly that the Bank of England forced to intervene to restore order. The The economic situation is too volatile that some mortgage lenders have temporarily withdrawn many products.

By Tuesday night, the Szostek family learned the bad news: The loan they had almost guaranteed had been wiped out. Suddenly, they were scrambling to find another lender as interest rates spiked higher.

Anne, 40, said: “Even when we became owners it was difficult, it felt like all their years of hard work vanished in that moment. “Why should I continue like this?”

With property prices skyrocketing in recent years and interest rates continuing to stay low, home ownership in the UK was once the path to prosperity for low- and middle-income families, providing a tangible property that looks likely to appreciate, as well as a place for them to own. .

Rising home prices and income inequality keep many people out of the market, but for those vying for home ownership, the latest rifts to the economy will hit hard. The release of the new government’s sweeping plan for Debt-financed tax cuts led to a massive rate hike this week, rocking the mortgage market. Many homeowners are calculating their potential future mortgage payments with alarm, amid soaring food and energy prices and a general cost-of-living crisis.

Before they were told they were no longer eligible, the family was in the final stages of applying for a five-year fixed-rate mortgage on a flat costing £519,000, or about 576,000 dollars, in the leafy parish of Loughton, a town. about 40 minutes north by train from London, where the streets are packed with students in the afternoon and the housing estates range from low-end apartments to million-pound mansions.

While fixed-rate mortgages, ranging from two to 10 years, are common in the UK, worrying many households at the moment, rising interest rates immediately threaten first-time homebuyers. and users of variable-rate mortgages, which account for about a quarter of all mortgages, according to the Financial Conduct Authority. And more than a third of all fixed-rate mortgages expire within the next two years, potentially exposing those borrowers to higher interest rates. In contrast, the majority of mortgages in the United States are locked for a fixed period of 30 years.

And a sudden spike in interest rates could threaten to trigger a housing market crisis, analysts at Oxford Economics wrote in a note on Friday, adding that if mortgage rates remain At the current rate, that means a home price of about 30 percent overvalued “based on the affordability of the mortgage payment.”

“This only adds significant stress to finances with hundreds of pounds a month,” said David Sturrock, a senior research economist at the Institute for Fiscal Studies. senior fellow at the Institute of Fiscal Studies, adds that tightening household budgets will affect the broader economy.

This week, uncertainty and even panic have been apparent, with many homeowners seeking financial advice. Mortgage brokers say they are receiving a higher-than-normal volume of inquiries from people stressed about refinancing their loans.

Caroline Opie, a mortgage broker who worked with Anne, said: “You can hear the fear in people’s voices. One couple this week even called her the morning of their wedding, she said, to make an appointment to refinance their mortgage next week.

For Juliet Young, 54, her husband’s terminal cancer diagnosis left the family living on her salary as an accountant in Liverpool. Young is now very worried about what will happen at the end of the year as a refinance of her 2017 loan could double her mortgage payment if interest rates rise as expected. ants. And that’s the anticipated increase in her energy bill.

“I feel like I did everything right,” Ms. Young said. “I played by the rules,” she said, adding that she felt she had no control over what had been a combined string of tensions. “It’s just one thing above another – above another.”

Rob Cowlin, 35, said the timing will feel “unbelievable”, who will need to renegotiate his mortgage over the next two weeks and calculate that his mortgage for a home in Essex , south-east England, could rise from £1,300 a month to more than £. 2,000 a month. Even with his job in IT, Mr. Cowlin said he is lighting candles and wearing a jacket instead of using a radiator to cut costs. “You’re paying to stay alive – food, energy, house,” he said.

“If that happens to me, it’s going to be worse for people who make less money,” he added.

With the supply of houses far below demand, house prices in the UK have in recent decades risen to become one of the most expensive in the world, while interest rates remain relatively low.

“It’s like the Bay Area on steroids in that we have an extremely inelastic supply,” said Paul Cheshire, professor emeritus of economic geography at the London School of Economics. In recent times, institutions have also created financial regulations to prevent people from borrowing too much, he said.

However, economists say lenders’ sudden decision to pull out products this week is a manifestation of unusual volatility in financial markets as banks and other lenders try to evaluate the path of interest rates in the context of strong volatility. Mr Cheshire said: “It’s changing right before their eyes and calls it ‘almost unprecedented’.

Ian Cleverley, sales manager for Douglas Allen Estate Agents in Loughton, said: “The future is really the best prediction, and says he has never seen a combination of economic factors. such negatives, including the coronavirus pandemic and war in Ukraine. “Something has to be given away,” he said. “Anyway, the price is too high.”

To save his deposit, Mr. Szostek, 37, took on construction shifts and cleaning jobs when restaurants were closed during the Covid-19 lockdown. A £5,000 inheritance from her grandfather Anne has been transferred into their escrow. With an interest rate of 3.99%, the mortgage repayment is set at around £2,200 a month.

“I want to feel really at home,” said Anne, adding that she will be the first in her family to own a property. Mr. Szostek called it “a lifelong dream”.

On Wednesday night, that dream still seemed within reach: Mortgage agent Opie found another loan, and they rushed to apply.

The higher interest rate – 4.6% – will mean their new monthly mortgage payment will be £2,400, the upper limit of what the Szostek family can afford. Still, they feel lucky to secure everything, hoping that means their promise to their children – of bigger bedrooms, more space, freedom to decorate as they please – will come true. reality.

They will wait to celebrate until the key is in hand, Mr. Szostek said.