Is the UK property market shaking?
Rising mortgage costs in the UK are raising fears among homeowners, investors and politicians.
As the UK public struggles with high prices for food, fuel and essential services, it is closely watched whether rising mortgage rates will hurt the £1.7 trillion (£2.2 trillion) property market. of dollars).
WHY HAVE MORTGAGE RATES RISE IN ENGLAND?
There are two types of mortgages in the UK, fixed rate and variable rate. Variable-rate mortgages vary based on the Bank of England interest rate, while fixed-rate mortgages guarantee that the interest rate will apply unchanged throughout the entire transaction for periods of 2 to 5 years. Fixed rate interest rates attempt to predict what future BoE rate rates will be during this period.
Data showing tighter-than-expected inflation in the UK led markets to expect BoE rates to stay higher and longer, and this was reflected in swap markets.
Data from Refinitiv Eikon showed two-year and five-year swaps hit 5.99 percent and 5.26 percent, respectively, on Thursday; Banks say they need to reflect these market movements to avoid pricing their mortgages at a loss.
WHO IS AT RISK?
Banks say only a small number of customers are experiencing financial difficulties or falling behind on payments. But they pay special attention to low-income households, which bear the brunt of high inflation.
One reason clients have held out so far is that many of them are still working and able to repay their loans even as their incomes have fallen, while rising UK unemployment is said to change that balance. .
According to data from UK Finance, of the almost 9 million unpaid mortgages, 800 million are due in the second half of 2023 and 1.6 million in 2024.
According to data released by debt institution StepChange on Thursday, 45 percent of those who take out home loans are having difficulty meeting their credit commitments, while the number of people using high-cost, unsecured loans in the country increased by 4.9 percent compared to 2022, according to UK Finance data.
THE NUMBER OF DELAYED PAYMENTS INCREASED
UK Finance reported that a 750 foreclosed home was seized in the first three months of this year. Although this rate increased by 50 percent compared to the previous quarter, it is well below the levels seen in previous crises.
Although the number of homeowners in default represents about 0.8 percent of outstanding home loans, the number is increasing by the day. In the first quarter of 2023, the number of homeowners who defaulted on 2.5 percent or more of outstanding loans was 76,630. This number is 2 percent more than the previous quarter.
Banks, on the other hand, say mass foreclosures are unlikely this time.
Large banks offer financial health checks, temporary pay holidays, referrals to interest-only payment plans for a short period of time or extended loan terms to customers they identify as needing support. However, they say that interrupting payments, as in the pandemic period, can have undesirable consequences.
IS THE SOLUTION LONG-TERM FIXED INTEREST?
While some experts risk trapping borrowers in bad deals, they say longer terms could be a response to mounting fear and pressure.
Speaking to Reuters, Campaign for Fair Finance founder Roger Gewolb said the transition to US practice, where most bank home loans are long-term fixed rates, could calm the market.