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We recently saw the Bank of England raise interest rates by 0.5%. This is the biggest rise in interest rates since 1997, a quarter of a century! This means that people will have to pay more on their mortgage payments. However, some experts predict that interest rates could raise to 4% by the end of the year. Which means that millions of homeowners are facing a problem in regard to their fixed rate loans ending. In this article we explore what the issues are and what those in the government and Bank of England plan to do.
The ticking of the time bomb surrounding mortgage payments
As we have seen in the news the UK economy is in a poor state. Inflation is expected to reach 13% and we are expected to enter a year long recession. This will be the longest recession since 2008 and the worst since the mid 1990s. People are going to feel the effects of this recession and one of the ways some will feel it worse is in their mortgage payments.
Those who have gotten a fixed rate deal on their mortgages will be protected from this rise. However, this will only be till the end of their term and 1.8 million fixed rate mortgages are set to end next year. This means that people are going to be met with higher mortgage payments. Given that prices and energy bills are also going up adding on eye watering mortgage payments will mean a lot of people will struggle.
What are the new rates of mortgage payments?
In this scenario we will look at someone with an average borrowing rate of £150,000. With a two-year fixed rate set at 3.46% this means they will have to pay an extra £1952 per annum. This results in an extra £162 per month. The main question people are asking is how are people meant to pay this?
The summer of discontent
We wrote an article on the threat of a summer of discontent which you can read here. What we discussed in there was the threat of mass strikes and people unable to pay bills. Since then, we have recently seen that the energy price cap could be raised to £4000. This has created mass discontent among people across the country. With winter only a few months away more energy is going to be used up and inflation will still rise. This alongside people unable to make their mortgage payments it doesn’t leave people with much hope.
All this anger will create a massive problem for the next government. The Liberal Democrat leader Ed Davey has demanded a recall of Parliament. Former Prime Minister Gordon Brown has called for an emergency budget to be made as soon as possible. Yet Boris has stood firm and not intervened as is tradition for a Caretaker Prime Minister. The Winner of the Conservative Party leadership is announced in early September meaning we still have to wait a month before we see real action. Because of this it is difficult to know who will be the person in charge of the treasury. Whilst there are plenty of rumours of who will be Chancellor, they are just rumours.
Among some of this discontent there is also a small trend on social media that is gaining traction. This trend is basically saying can’t pay, won’t pay. It is in response to the high bills and people will refuse to pay them as they deem them unaffordable. Whilst it is gaining attention it is hard to say what the repercussions and fallout will be. For now it looks like we will just have to wait and see.
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