B.ritan mortgage Machines continue to break records. Mortgage rates rose at their fastest pace in a decade this summer, thanks to the Bank of England’s base rate hike aimed at keeping inflation in check. Then, the financial turmoil caused by the government’s devastating (and now mostly scrapped) mini-budget in September forced banks to suspend hundreds of mortgage products, reducing loan availability. Possibilities plummeted. House prices fell last month for the first time in 15 months, according to data released by lender Nationwide on Nov. 1. And mortgage rates are now soaring to their highest level since 2008. At the end of October, the average 2-year and 5-year fixed rates jumped to 6.48% and 6.33% respectively, according to data provider His Moneyfacts. That’s more than double what he was a year ago. In mid-October, think tank Resolution Foundation predicted that fixed rates could exceed 6% and floating rates could soar to 8%. On November 3rd, the Bank of England will announce its latest interest rate decision. Investors expect a 0.75 percentage point gain, the biggest 3% gain in more than 30 years. Where does this take borrowers?
According to the latest estimates from the Resolution Foundation, by the end of 2024, one in five UK households will have an average annual bill increase of £5,100 ($5,854). The think tank expects annual household payments to increase her by £8,000 in London. The lowest income borrowers will bear the brunt of the storm. The bottom tier will pay an extra 10% of his income for housing by the end of 2024, compared to about 4% for the top tier. For now, mortgage delinquencies and repayments are at historically low levels, partly thanks to persistently low interest rates over the past few years. But it could rise to 1.6% in 2024 from 0.7% today, according to consulting firm Capital Economics.
The risk of negative capital is also looming when the value of the property is lower than the collateral loan. Another consultancy, housing analyst Neil Hudson, said that in the UK, when house prices fall by 20%, up to 5% of mortgages become negative assets. This rises to about one-tenth of households in London with a mortgage. Most vulnerable are first-time buyers and recent borrowers, many of whom bought homes as home prices skyrocketed after the temporary reduction in stamp duty (a tax on home purchases) in 2020 . equity.
All of this uncertainty means banks are pulling the riskiest mortgage products off the shelves. This makes it even more difficult to get on the residential ladder. Cash-strapped young professionals with small deposits will be particularly burdened. In his year to October, the lender withdrew his 60% of a mortgage product that only required a 5% down payment. For mortgages that require a 10% down payment, that number has almost halved. Potential buyers may welcome a slowdown in the housing market. But if interest rates continue to rise, consumers’ ability to borrow to spend on their homes and other things will plummet even further. Property may be cheaper. No mortgage. ■