millions of mortgage borrowers England Be prepared for a significant increase in your monthly payments as a result of the weaker pound.
Markets are in turmoil after announcement by UK Finance Minister Kwasi Kwarten Biggest tax cut in 50 years The pound fell to a record low against the US dollar on Friday after a significant increase in government borrowing.
Some analysts now expect the Bank of England to raise interest rates. Borrowing cost ～6% It will rise from 2.25% next year, convincing the market that it is committed to supporting the currency and keeping inflation under control.
“It is difficult to draw the following conclusions. [recent events] Central bank chief economist Hugh Pill said Tuesday at the Barclays CEPR International Monetary Policy Forum. Reuters report.
The market had already expected the central bank to raise interest rates to 4.75% by next spring. Laura Suter, head of personal finance at investment firm AJ Bell, told CNN Business. Borrowers now face an even bigger precipice.
According to UK Finance, an association of banks and financial services firms, there are 9 million outstanding home loans in the UK. About 20% of these loans are trackers, or floating rate products, which usually become more expensive when central banks raise interest rates.Fixed interest rate otherwise loan.
But according to the Resolution Foundation, as many as 1.8 million borrowers will have to refinance next year. About 300,000 fixed-rate deals will close between October and December, said Neil Hudson, a housing market analyst at research firm Builtplace. These borrowers face a sudden increase in their monthly payments when they refinance.
If the base rate rises to 6%, a person refinancing a £146,000 ($157,000) 20-year fixed-rate mortgage will pay an additional £309 ($333) per month, Suter said. have to pay That’s £108 ($116) more than estimated before the pound crash.
Many borrowers cannot cope. Samuel Toombs, chief economist at Pantheon Macroeconomics, said in a report on Tuesday that a 6% mortgage rate “will lead to a steep rise in mortgage defaults.”
Monthly payments for the average household refinancing a two-year fixed-rate mortgage in the first half of next year rose a whopping 73% to £1,490 ($1,607), an increase of about 14% in disposable income. He is calculating.
“In the same way that house prices are likely to fall, mortgage delinquencies and defaults will increase, putting a heavy strain on bank balance sheets,” he said in a report.
Banks are already becoming more risk averse as they struggle to repricing mortgages in such a volatile market.
Since Friday, financial institutions have withdrawn more than 350 mortgage products in response to the turmoil, according to financial product comparison site Moneyfacts.
Halifax owned by Lloyds Bank (LLDTFMore) has removed some of its mortgage products, while Virgin Money has stopped accepting mortgage applications from new customers until later this week.
(Mr. Miss) said it would eliminate mortgages worth 60% and 85% of property value for new UK customers and raise interest rates for “new and existing customers from 10pm tonight”.
“Customers who have already applied by this point will not be impacted,” a company spokesperson told CNN Business in a statement.
Borrowers are worried. Online searches for ‘remote mortgage’ more than doubled in the UK on Monday, according to an analysis of Google search data by mortgage broker LoanCorp.
Some may have trouble finding deals at all.
“People with small deposits or looking to borrow at the maximum affordability will find it harder to get a mortgage or pay higher interest rates to do so. You may notice.
— Julia Horowitz contributed to the report.