As UK housing costs soar, home owners and renters worry: ‘I’m broke’

LONDON — For Sadie James, Britain’s cost of living crisis never seems to ease.

First, there was the skyrocketing energy and food costs that resulted from Russia’s invasion of Ukraine. The 61-year-old woman is now worried about whether she will be able to keep a roof over her head.

James, who lives in South London, has struggled to stay on top of his finances for years. Just as she started to pay off her debts, she’s back to her old ways: her rent keeps rising and her welfare payments, on top of higher food and energy bills, can’t keep up.

“I actually have a meltdown every time I think about it,” said James, who is unable to work due to underlying health issues. “I’m literally depressed, I’m angry, I’m completely overwhelmed because I don’t want to lose my home.”

Interest rates have risen rapidly in recent months, pushing up mortgages and rents in the UK. Interest rates jumped to 5% after hovering below 1% for the past decade as the Bank of England tried to curb inflation, the highest in the Group of Seven major economies.

As usual, the poorest households bear the brunt. Interest rate rises have led to the biggest drop in household wealth in Britain since the Second World War, according to new research from the Resolution Foundation think tank.

Unlike the US, where many mortgages are for up to 30 years, UK 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 set to expire by the end of next year, and around a million households will face an increase of £500 ($655) a month in their average mortgage repayments by 2026, Bank of England Governor Andrew Bailey said.

This has put pressure on both Bailey and Prime Minister Rishi Sunak, whose power is ailing ahead of next year’s general election. Higher interest rates help reduce inflation by making it more expensive to borrow – people potentially spend less, reducing demand and putting pressure on prices.

Although inflation has moderated compared to last year’s double-digit peak, it remains stubbornly high at 8.7 percent, and the central bank is expected to continue raising interest rates – already at a 15-year high. This resulted in growing fears of the economy slipping into recession.

Many landlords facing higher mortgage payments want to pass those costs on to tenants. The scarcity of rental options doesn’t help either.

James says his landlord, a London housing association that manages affordable rental housing for lower-income tenants, has raised his rent every year, most recently by 4% to £170 ($223) a week. For James, who can barely cover his other bills, the rent increases seem relentless and he fears eviction.

“It’s a nightmare to think that one day they’re going to come … I’m going to lock the door and I can’t get in,” she said.

Despite a sharp rise in mortgage rates, renters are struggling to afford their homes more than homeowners, according to the Office for National Statistics. Renters typically spend a larger proportion of their income on housing costs.

Jon Taylor, debt manager at the charity Christians Against Poverty, who helped James, said his organization had seen a significant increase in renters over the past two years. Almost half of the charity’s new clients ask for help paying their rent.

“Rent increases are already astronomical here in London and people can’t afford it,” he said. “There is this group that could almost pay the rent, but it is no longer sustainable. so something has to give.”

Rising rates don’t just affect people on the bread line or on social welfare, he added. He is also worried about the employees, who can easily get into debt because they cannot cover the simultaneous increase in food, housing and energy bills that have been experienced since last year.

“I’m extremely concerned that more and more people are going to come to us and say, ‘We can’t pay the mortgage’ – people who you never thought needed that kind of help are now going to be struggling.” ,” he said.

As a result of the interest rate hikes, the average interest rate on two-year fixed mortgage loans rose to 6.66%, which is the highest since before the 2008 global financial crisis.

Joanne Barker-Marsh, a single mother caring for her teenage son with special needs, tries not to think about February when her fixed-rate mortgage comes up for renewal. He is about to more than double his salary.

“I’m going to fly by the seat of my pants,” Barker-Marsh said. “I can’t even deal with it now because I’m afraid.”

The 51-year-old, from Rochdale in northern England, lost her job during the outbreak and is in need of social services. He spends a third of his state benefits on a mortgage.

“I don’t have any spare cash, I don’t know where we’re going from here,” he said. “It eats up a lot of social service payments.”

Bailey, the central banker, expressed hope that the country’s biggest banks are flexible enough to provide more help than they could before the global financial crisis. He said banks have more capital and carry much less debt than they did then, so they can offer more financial options to struggling households.

Whatever options are available, the trickle of bad news won’t help those worried about where the cost-of-living crisis will continue.

“I don’t have a chance to catch up, to get better, because the next moment it’s something else,” James said. “And I don’t understand why.”