Interest rates have risen rapidly in recent months, which in turn have ratcheted up mortgages and rents across the United Kingdom. Rates have hit 5% after being below 1% for the past decade as the Bank of England has tried to bring down the highest inflation in the Group of Seven major economies.
The rate hikes have led to the biggest fall in household wealth in Britain since World War II, according to new research from the Resolution Foundation think tank.
Unlike the United States, where many mortgages are fixed for up to 30 years, U.K. homeowners are more exposed to changes in the cost of borrowing because a large percentage of them have loans that need to be renewed every two or five years.
Around 2.5 million such deals are due to expire by the end of next year, with around a million households facing a 500-pound ($655) monthly increase in their average mortgage repayments by 2026, Bank of England Gov. Andrew Bailey said.
That has put pressure on both Bailey and Prime Minister Rishi Sunak, whose hold on power is tenuous ahead of a likely general election next year. Making it more expensive to borrow is how higher interest rates help lower inflation — people potentially spend less, reducing demand and pressure on prices.
Though inflation has eased from a double-digit peak last year, it's still stubbornly high at 8.7%, and the central bank is expected to keep hiking rates — already at a 15-year high. That has led to mounting fears of the economy sinking into recession.
Many landlords facing higher mortgage payments want to pass on those costs to renters. A dearth of rental options doesn’t help either.
