Home News U.K. Housing Market Heads for Mortgage-Rate Shock

U.K. Housing Market Heads for Mortgage-Rate Shock

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LONDON—Britain is about to make its biggest impact on the world. the housing market Since the 2008 financial crisis, hundreds of thousands of UK homeowners have seen their monthly mortgage payments skyrocket in the coming months, economists say.

The UK is vulnerable to rising mortgage rates. 30-year fixed-rate mortgages predominate in the United States, usually secured by government-backed lenders, but most mortgage rates reset after 2-5 years.

Fixed rates will expire on about 2.4 million mortgages out of 8.4 million across the UK later this year and next year, according to industry group UK Finance. Similar moves are also unfolding in European countries such as Italy, Portugal and Spain.

Average interest rates on new UK home loans with two or five year fixed rates topped 6% last week for the first time since 2008 and 2010 respectively, according to financial analytics firm Moneyfacts Group PLC. The average interest rate has more than doubled for him over the past year.

UK mortgage rates have risen sharply in the past two weeks after new Prime Minister Liz Truss’ government announced Broad Tax Cuts and Spending PlansThe program provoked selling british pound And the already rising bond yields will rise further. So-called swap interest rates, which are closely related to mortgage interest rates, soared.

Large volatility in bond yields forces lenders withdraw some types of mortgages Protect yourself from rising borrowing costs by raising interest rates.Expected by many investors bank of england We will continue to raise policy rates aggressively to combat inflation that could put further upward pressure on mortgage rates.

Higher mortgage interest rates are added long list of troubles The world’s fifth largest economy, political turmoil It envelops Mr. Truss’ government. Inflation is higher here Rising rents, import prices and energy costs have been a tailwind, more than most other wealthy countries.

“It’s becoming clear that the housing market will adjust on a similar scale,” said Andrew Wishart, senior real estate economist at Capital Economics, after the 2008 housing crash and the early 1990s crash. rice field.

The turmoil in the UK bond market created a feedback loop, leaving investors such as pension funds short on cash and spilling over to other markets. WSJ’s Chelsey Dulaney explains the types of investments at the heart of the crisis.Illustrated by Ryan Trefes

Capital Economics predicts a 12% price drop over the next two years. Adjusting for inflation would result in a sharper decline than during the global financial crisis, Wishart said. A significant increase in delinquencies, or borrowers defaulting on their mortgages, and foreclosures are inevitable, he said.

US homeowners are more vulnerable to rising interest rates, but otherwise the two housing systems share similarities. After the financial and housing crises of 2008, regulators in both countries introduced reforms to prevent high-risk mortgages.

These reforms include limits on how much households can borrow relative to salaries and house prices, and higher capital requirements to allow banks to absorb losses if borrowers default. was

Economists expect the UK housing market to slow, but say they don’t believe the slowdown will collapse the financial system and the economy. , meaning that the resulting losses can be easily absorbed.”

Mortgages are a major source of business for UK retailers, who earn their income from fees for arranging mortgages and the spread between the interest they charge borrowers and the amount they pay on deposits.

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The largest mortgage lender by market share last year was

Lloyds Bank Group


natwest group

PLC and member-owned Nationwide Building Society, according to UK Finance.

“I don’t believe in fate, but it’s really bad timing when it happens.

Briscoe and his partner’s five-year fixed rate will expire in the next 90 days. Their lender recently offered them a new interest rate of his 6%, three times his current rate, he said.

Briscoe, 42, is a private tutor to a medical apprentice, but said he and his partner could afford to pay. said they had to significantly downgrade their lifestyle by terminating their health insurance policy and forgoing occasional trips to nature reserves. I try not to turn on the heating to save money.

It was the first time in his life that Briscoe had experienced the effects of high inflation and rising interest rates, and he suddenly felt uneasy.

“I’m holding on as long as I can, hoping that interest rates will come down a little bit,” Briscoe said before refinancing.

For those who took out a two-year, fixed-rate mortgage last year, payments increased by an average of 73% to £1,490 a month during the pandemic boom fueled by tax incentives, which is expected to rise next year. It initially equates to about $1,650. , Pantheon Macroeconomics Estimates.

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