Copy article

Struggling homeowners

Journalist: Gillian Duncan, The National

ended 06. September 2023

Hello,

I am planning on writing a series of articles about the impact of rising interest rates on the UK property market and homeowners, beginning with a story setting out a bit of an illustration. This is all quite timely since rates could peak at 6% next year following the release of wage increase data recently.

The case study will take a theoretical family, with two average wage earners in London, who bought a house on a five-year fixed deal almost 5 years ago, when the interest rates were really low. I'm thinking of a 3 bed terraced house price of around £800k or so with £300k of equity, so a £500k mortgage. 

What I plan to do with the case study is to look ahead to what their new rates will be when that five-year fixed deal finishes to really bring home the impact of rising rates. 

I am looking for an expert to comment on this. 

Thanks,

Gillian 

3 responses from the Newspage community

Copy all

Copy

Kundan Bhaduri
Property Developer and Portfolio Landlord at The Kushman Group
Gillian - we are portfolio landlords so I will give you a landlord's view. In the face of relentlessly soaring 5Y fixed rates, the agony of homeowners and landlords across the UK has now reached a fever pitch. The rates have now surged to a 15-year high, leaving families and small investors struggling to make ends meet and prospective buyers wary of entering the housing market. It's a crisis that's demanding answers, and demanding them urgently.

For the average Briton, a beacon of hope lies in the 2-year SWAP rate, a critical gauge that could dictate the fate of the property market. Should it drop below 5%, it could breathe life back into a market teetering on the edge. But the question lingers: Can this pivotal shift happen before the year's end? It's a make-or-break moment that could determine whether dreams of homeownership can be rekindled or left to wither. This is the opportunity for Sunak to come good on his promises to the public - his premiership is being tested here and now.
Copy

Christian Duncan
Managing Director at Manchester Mortgage Centre
Since December 2021 we’ve seen 14 interest rate increases to the Bank of England base rate in a bid to curve inflation. The Bank of England monetary Committee meet eight times a year (roughly every six weeks) and their key objective is to keep inflation at around 2%.

Since December 2021 we’ve seen the largest interest rates since 2008. This is leaving people in a mess. If we look at somebody that took a 5 year fixed rate mortgage in 2018 their rate would have been around 2.5%. If we compare that to todays rates this would be around 5.5%! A 3% increase. That’s a huge increase of £201 per month per £100,000 outstanding. In interest along!

Mortgage holders should prepare for further rate increases and get their finances in order to prepare for this.
Copy

James Bull
Mortgage Broker at JB Mortgages
I personally bought a property in 2021 and took a fixed rate of 1.79% for 2 years. The monthly repayments were £697 per month. Now it is time to renew this i am looking at a new deal of 6.19% for 2 years, with payments of £1150 per month. Many of my clients are faced with similar situations. Mortgage affordability has been stress-tested against higher interest rates for quite some time. So although the increases are affordable, it does mean that cutbacks will have to made in other areas. This is not something that most people are very happy about.