Whereas a year ago they could borrow at rates below 2.5%, Britons are now negotiating fixed-rate mortgages at over 6%, according to Moneyfacts. This explosion in mortgage rates is mainly the result of the Bank of England's policy.
Bank of England raises rates to counter inflation
In early November, the Bank of England decided to raise rates for the eighth consecutive time as part of its relentless fight against inflation. With an increase of 0.75 basis points, it followed in the footsteps of the FED, which raised its key rates from 3.75% to 4%.
According to the BoE, this increase would limit " the risk of further tightening, which would be more prolonged and costly ".
This impression is not borne out by the US Federal Reserve, which is forecasting further rate hikes.
A high level of uncertainty
While most economists expected the BoE to raise interest rates by 75 basis points, there were differences of opinion within the Monetary Policy Committee. In fact, seven of the nine members had decided in favor of such a significant increase, while two members favored a smaller hike of 50 basis points or less.
This hesitation shows the level of uncertainty in which the BoE made its decision. At the same time, inflation has passed the 10% mark and could well remain there through 2023. To protect households and businesses from rising prices, the government had announced an intervention in the energy market. Indeed, just 10 days after taking office in Downing Street, Liz Truss unveiled a plan that included a 2-year freeze on energy bills for British households. But her resignation and the withdrawal of the announced tax plan disrupted the credit market.
Hundreds of thousands of borrowers have seen their monthly payments rise as a result of higher interest rates. Their financial situation has been exacerbated by soaring energy prices.
Rates in excess of 6
Almost a month after the resignation of Liz Truss and the abandonment of the tax plan, the UK property market is still marked by financial turbulence. Fixed-rate mortgages are being offered at rates in excess of 6%, whereas households could borrow at less than 2.5% in 2021.
The situation is made all the more difficult for Britons by the fact that, even in the case of a fixed-rate loan, the rate is not guaranteed for the entire duration of the loan, but only for a period generally between 2 and 5 years. Beyond this period, borrowers are forced to renegotiate their loans at current unfavorable market conditions.
According to the Bank of England, more than 2 million households will have to renegotiate their credit by 2023. For most, monthly payments could rise by several hundred euros.