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| ‘You Can Feel the Fear’: U.K. Borrowers Face Up to a Broken Mortgage Market | |
| (32 minutes later) | |
| LOUGHTON, England — After nearly two decades of renting in one of the world’s most expensive cities, the Szostek family began the week almost certain that they would finally own a home. | LOUGHTON, England — After nearly two decades of renting in one of the world’s most expensive cities, the Szostek family began the week almost certain that they would finally own a home. |
| Transplants to London who fell in love as housemates, Laetitia Anne, an operations manager from France and her husband, Maciej Szostek, a chef from Poland, had long dreamed of being homeowners. They had waited out the uncertain pandemic years and worked overtime shifts to save up for the deposit for a mortgage on a three-bedroom apartment in a neighborhood outside London. Their 13-year-old twins were excited they could finally paint the walls. | Transplants to London who fell in love as housemates, Laetitia Anne, an operations manager from France and her husband, Maciej Szostek, a chef from Poland, had long dreamed of being homeowners. They had waited out the uncertain pandemic years and worked overtime shifts to save up for the deposit for a mortgage on a three-bedroom apartment in a neighborhood outside London. Their 13-year-old twins were excited they could finally paint the walls. |
| That was before British financial markets were upended, with the pound briefly hitting a record low against the dollar on Monday and interest rates soaring so rapidly that the Bank of England was forced to intervene to restore order. The economic situation was so volatile that some mortgage lenders temporarily withdrew many products. | That was before British financial markets were upended, with the pound briefly hitting a record low against the dollar on Monday and interest rates soaring so rapidly that the Bank of England was forced to intervene to restore order. The economic situation was so volatile that some mortgage lenders temporarily withdrew many products. |
| By Tuesday evening, the Szostek family learned the bad news: The loan that they were close to securing had fallen through. Suddenly, they were scrambling to find another lender as interest rates climb higher. | By Tuesday evening, the Szostek family learned the bad news: The loan that they were close to securing had fallen through. Suddenly, they were scrambling to find another lender as interest rates climb higher. |
| “It’s so hard even for us to become owners,” said Ms. Anne, 40, who said it felt like all of their years of hard work were evaporating in that moment. “Why should I carry on like this?” | “It’s so hard even for us to become owners,” said Ms. Anne, 40, who said it felt like all of their years of hard work were evaporating in that moment. “Why should I carry on like this?” |
| With property prices skyrocketing in recent years and interest rates remaining low, homeownership in Britain was once a path to prosperity for lower- and middle-income families, offering a tangible asset that seemed likely to appreciate, as well as a place to call their own. | With property prices skyrocketing in recent years and interest rates remaining low, homeownership in Britain was once a path to prosperity for lower- and middle-income families, offering a tangible asset that seemed likely to appreciate, as well as a place to call their own. |
| Rising home prices and income inequality priced many out of the market, but for strivers who aspired to homeownership, the latest ruptures to the economy hit hard. The release of the new government’s sweeping plan for debt-funded tax cuts led to a big uptick in interest rates this week that roiled the mortgage market. Many homeowners are calculating their potential future mortgage payments with alarm, amid soaring energy and food prices and a general cost-of-living crisis. | Rising home prices and income inequality priced many out of the market, but for strivers who aspired to homeownership, the latest ruptures to the economy hit hard. The release of the new government’s sweeping plan for debt-funded tax cuts led to a big uptick in interest rates this week that roiled the mortgage market. Many homeowners are calculating their potential future mortgage payments with alarm, amid soaring energy and food prices and a general cost-of-living crisis. |
| Before they were informed they were no longer eligible, the family had been in the final stages of applying for a five-year fixed-rate mortgage on an apartment priced at £519,000, or around $576,000, in the leafy parish of Loughton, a town about 40 minutes north of London by train where the streets fill with students in the afternoon and the properties span from lower-end apartments to million-pound mansions. | |
| While fixed-rate mortgages, ranging from two- to 10-year terms, are common in Britain, insulating many households for the moment, rising rates more immediately threaten first-time home buyers and those on variable-rate mortgages, which account for around a quarter of all mortgages, according to the Financial Conduct Authority. And more than a third of all mortgages are on fixed rates that expire within the next two years, most likely exposing those borrowers to higher rates, too. By contrast, the vast majority of mortgages in the United States are locked in for 30-year fixed terms. | While fixed-rate mortgages, ranging from two- to 10-year terms, are common in Britain, insulating many households for the moment, rising rates more immediately threaten first-time home buyers and those on variable-rate mortgages, which account for around a quarter of all mortgages, according to the Financial Conduct Authority. And more than a third of all mortgages are on fixed rates that expire within the next two years, most likely exposing those borrowers to higher rates, too. By contrast, the vast majority of mortgages in the United States are locked in for 30-year fixed terms. |
| And the abrupt surge in interest rates could threaten to set off a housing market crisis, analysts at Oxford Economics wrote in a note on Friday, adding that if mortgage rates stayed at the levels now being offered, that would suggest that house prices were around 30 percent overvalued “based on the affordability of mortgage payment.” | And the abrupt surge in interest rates could threaten to set off a housing market crisis, analysts at Oxford Economics wrote in a note on Friday, adding that if mortgage rates stayed at the levels now being offered, that would suggest that house prices were around 30 percent overvalued “based on the affordability of mortgage payment.” |
| “This just adds a significant further strain to finances in the order of hundreds of pounds a month,” said David Sturrock, a senior research economist at the Institute for Fiscal Studies, adding that the squeeze on household budgets will affect the broader economy. | “This just adds a significant further strain to finances in the order of hundreds of pounds a month,” said David Sturrock, a senior research economist at the Institute for Fiscal Studies, adding that the squeeze on household budgets will affect the broader economy. |
| Uncertainty and even panic was clear this week, with many homeowners seeking financial advice. Mortgage brokers said they were receiving a higher volume of inquiries than normal from people stressed about refinancing their loans. | Uncertainty and even panic was clear this week, with many homeowners seeking financial advice. Mortgage brokers said they were receiving a higher volume of inquiries than normal from people stressed about refinancing their loans. |
| “You can feel the fear in people’s voices,” said Caroline Opie, a mortgage broker working with Ms. Anne who said she had not seen this level of worry in a long time. One couple this week even called her the morning of their wedding, she said, to set an appointment to refinance their mortgage next week. | “You can feel the fear in people’s voices,” said Caroline Opie, a mortgage broker working with Ms. Anne who said she had not seen this level of worry in a long time. One couple this week even called her the morning of their wedding, she said, to set an appointment to refinance their mortgage next week. |
| For Juliet Young, 54, her husband’s terminal cancer diagnosis had left the family relying on her salary working as an accountant in Liverpool. Now, Ms. Young has been consumed about what will happen at the end of the year when a refinancing of her 2017 loan could see her mortgage payment double if interest rates rise as expected. And that is on top of anticipated increases in her energy bills. | |
| “I feel like I’ve done everything right,” Ms. Young said. “I’ve played by the rules,” she said, adding that she felt she had no control over what had been a compounding series of stresses. “It’s just one thing on top of another — on top of another.” | “I feel like I’ve done everything right,” Ms. Young said. “I’ve played by the rules,” she said, adding that she felt she had no control over what had been a compounding series of stresses. “It’s just one thing on top of another — on top of another.” |
| The times felt “Dickensian,” said Rob Cowlin, 35, who will need to renegotiate his mortgage in the next two weeks and calculated that his mortgage for a home in Essex, in southeastern England, could go from £1,300 a month to over £2,000 a month. Even with a job in I.T., Mr. Cowlin said he was lighting candles and wearing coats instead of using the radiator to cut costs. “You’re paying to stay alive — food, energy, house,” he said. | The times felt “Dickensian,” said Rob Cowlin, 35, who will need to renegotiate his mortgage in the next two weeks and calculated that his mortgage for a home in Essex, in southeastern England, could go from £1,300 a month to over £2,000 a month. Even with a job in I.T., Mr. Cowlin said he was lighting candles and wearing coats instead of using the radiator to cut costs. “You’re paying to stay alive — food, energy, house,” he said. |
| “If that’s happening to me, it’s going to be way worse on people who earn less,” he added. | “If that’s happening to me, it’s going to be way worse on people who earn less,” he added. |
| With a supply of homes far lower than demand, house prices in Britain in recent decades have surged to become among the most expensive in the world, while interest rates have remained relatively low. | With a supply of homes far lower than demand, house prices in Britain in recent decades have surged to become among the most expensive in the world, while interest rates have remained relatively low. |
| “It’s like the Bay Area on steroids in that we have an incredibly inelastic supply,” said Paul Cheshire,” an emeritus professor of economic geography at the London School of Economics. Institutions in recent times, he said, had also created financial regulations to prevent people from borrowing too much. | “It’s like the Bay Area on steroids in that we have an incredibly inelastic supply,” said Paul Cheshire,” an emeritus professor of economic geography at the London School of Economics. Institutions in recent times, he said, had also created financial regulations to prevent people from borrowing too much. |
| Still, economists said the decisions of lenders to withdraw products suddenly this week was an expression of the extraordinary uncertainty in the financial markets as banks and other lenders try to assess the path of interest rates amid wrenching volatility. “It’s changing in front of their eyes,” said Mr. Cheshire, calling it “almost unprecedented.” | |
| Lenders rapidly pulled mortgage products from the market, removing about 40 percent of them by Thursday morning. | |
| “Predicting the future is really a best guess,” said Ian Cleverley, a sales manager at Douglas Allen Estate Agents in Loughton, who said he had never seen such a confluence of negative economic factors, including the coronavirus pandemic and the war in Ukraine. “Something has got to give,” he said. “Prices are too high anyway.” | “Predicting the future is really a best guess,” said Ian Cleverley, a sales manager at Douglas Allen Estate Agents in Loughton, who said he had never seen such a confluence of negative economic factors, including the coronavirus pandemic and the war in Ukraine. “Something has got to give,” he said. “Prices are too high anyway.” |
| To save for the deposit, Mr. Szostek, 37, picked up construction shifts and cleaning jobs when restaurants closed during Covid-19 lockdowns. A £5,000 inheritance from Ms. Anne’s grandfather went into their deposit fund. At a 3.99 percent interest rate, the mortgage repayments were set to be about £2,200 a month. | To save for the deposit, Mr. Szostek, 37, picked up construction shifts and cleaning jobs when restaurants closed during Covid-19 lockdowns. A £5,000 inheritance from Ms. Anne’s grandfather went into their deposit fund. At a 3.99 percent interest rate, the mortgage repayments were set to be about £2,200 a month. |
| “I wanted to feel at home for real,” said Ms. Anne, adding she would have been the first in her family to own a property. Mr. Szostek called it “a lifelong dream.” | “I wanted to feel at home for real,” said Ms. Anne, adding she would have been the first in her family to own a property. Mr. Szostek called it “a lifelong dream.” |
| On Wednesday night, that dream still seemed in reach: The mortgage dealer Ms. Opie had found another loan, which they rushed to apply for. | On Wednesday night, that dream still seemed in reach: The mortgage dealer Ms. Opie had found another loan, which they rushed to apply for. |
| The higher interest rate — 4.6 percent — will mean their new monthly mortgage payment will be £2,400, the upper limit of what the Szostek family can afford. Still, they felt lucky to secure anything at all, hoping it will mean their promises to their children — of bigger bedrooms, more space, freedom to decorate how they like — will materialize. | The higher interest rate — 4.6 percent — will mean their new monthly mortgage payment will be £2,400, the upper limit of what the Szostek family can afford. Still, they felt lucky to secure anything at all, hoping it will mean their promises to their children — of bigger bedrooms, more space, freedom to decorate how they like — will materialize. |
| They would wait to celebrate, Mr. Szostek said, until they had the keys in hand. | They would wait to celebrate, Mr. Szostek said, until they had the keys in hand. |