1 Million UK Homeowners at Risk as Interest Rates Rise

Economist at NIESR, Mr. Max Mosley, warned that “a rise in interest rates to the 5% threshold will push millions of households with home loans to the brink of insolvency. None of the lenders have predicted that households can weather such shocks, and the government has said the same thing.”

British Finance Secretary Jeremy Hunt recently met with major banks and financial institutions to discuss how to respond to the crisis in the real estate sector in the country. There is a mounting pressure on the UK government to do more to help households struggling to pay their mortgages. The UK Finance Minister recently warned of a mortgage disaster as millions of home buyers were pushed to the brink of bankruptcy, according to the content of a new article published by CNBC.

Last week, the Bank of England (BOE) raised the prime interest rate for sterling by 50 basis points to 5%, such an increase higher than experts' expectations. This policy move, which is calculated to bring down inflation, will affect millions of home owners as the interest rates on many UK mortgages are directly linked to the bank's base rate. Additionally, tenants will also have to pay more because the homeowner has to pay higher interest to the bank.

Research from the Institute for Economic and Social Research (NIESR) shows that after the latest rate hike, 1.2 million UK home owners or about 4% of homeowners could potentially run out of savings before the end of the year because of higher mortgage interest payments. NIESR calculations show the proportion of households insolvent rising to an estimated 30% or 7.8 million, with Wales and the North East of England hardest hit.

The British government is under immense pressure to help struggling households and prevent a potential housing crisis. British Finance Secretary Jeremy Hunt has met with major banks and financial institutions to discuss how to respond to the crisis in the real estate sector in the country. The regulator and mortgage lenders have also agreed to make temporary changes to mortgage measures and pledged that consumers' credit scores will not be affected after the crisis, Hunt said. Also, according to the minister, families who are at risk of losing their home will receive a 12-month grace period and then an adjustment.

British Prime Minister Rishi Sunak recently stated that the British government would keep the target of reducing inflation to 5% before the end of this year. BOE Governor Andrew Bailey said Thursday's rate hike was absolutely necessary to continue the fight against high inflation. Official figures released ahead of the BOE meeting showed that annual inflation increased by 8.7% in May 2023, higher than expected. It means that the consumer price index is at a higher level than the BOE's 2% target.

“We know this goal is not easy. Many people with mortgages or loans worry about what this means for them. However, if interest rates are not adjusted now, the consequences will be even worse in the future,” Mr. Bailey said.

The British government and the BOE are taking measures to stabilize the real estate sector and prevent a potential housing crisis. With the recent rate hike, there is a growing fear among many UK home owners about the rising mortgage interest payments that could push them towards insolvency. The government's temporary changes to mortgage measures and a 12-month grace period for families at risk of losing their home are vital lifelines for many.

The crisis in the real estate sector in the UK is a growing concern for many. As many home owners and tenants feel the impact of the recent interest rate hike, the British government has pledged to take measures to prevent a potential housing crisis. The temporary changes to mortgage measures and a 12-month grace period for families at risk of losing their home are crucial to stabilizing the real estate sector in the country.