If they had it to do over again, Natalie Hall and her husband James might not buy their beautiful five-bedroom house in Peterborough, central England. But in 2018, with their mortgage fixed for five years at 1.8%, the monthly payment of £1,250 (€1,430) seemed reasonable to them.
Ace! The inflation shock went through there. To combat rising prices, the Bank of England raised its key interest rate from 0.10% to 3% in a year. Bad luck for the British couple who have two young children. In fact, the five-year fixed-rate period on their loan will expire in April 2023. Natalie and James have started to do their research: the new rates the banks are offering them are just under 6%. Their monthly payment will therefore rise to almost £1,800.
“At that price, five years ago, we probably would have considered this house unaffordable”, witness Mme The lobby. The couple – he works on his own installing alarm systems in houses, she carries out replacements in high schools – are studying different options: extending the loan period, moving to a smaller home… At that moment, he wants to start by reducing his expenses as much as possible. “We had to change one of our two cars this year. We will push it back. We were lucky enough to have a good holiday every year. We will probably cancel. »
More than elsewhere, the UK property market is bearing the brunt of interest rate rises. Unlike France or the United States, where loans are granted at a fixed rate for twenty or even thirty years, in the United Kingdom they develop according to central bank interest rates. Of the 8.5 million households that have a cross-channel mortgage, 2.2 million have a product that is directly indexed to the policy rate and changes month by month.
Increase in refunds per household
The others have rates which are only set for a short period (between two and five years) and which must be renewed after this period. Over the next two years, 3.1 million households will have to renegotiate their tariff, or around 130,000 a month, according to calculations by the Financial Conduct Authority (FCA), the financial regulator.
For many households, the impact is severe. Two-year fixed-rate mortgages, which were around 1.3% in 2021, have risen to nearly 6%, said Dominik Lipnicki, who runs Your Mortgage Decisions, a mortgage brokerage. Result: The market is now completely sluggish. “The number of property deals has collapsed and prices have started to fall”witnesses Mr. Lipnicki.
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