In the United Kingdom, the real estate market reeling from the rise in interest rates

If it had to be done over again, Natalie Hall and her husband James might not buy their beautiful five-room house in Peterborough, in the center of England. But in 2018, with an interest rate on their mortgage fixed for five years at 1.8%, the monthly payment of 1,250 pounds (1,430 euros) seemed reasonable to them.

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The ace ! The shock of inflation went through there. To fight against rising prices, the Bank of England increased its key interest rate from 0.10% to 3% in one year. Bad luck for the British couple, who have two young children. Indeed, the five-year fixed rate period of their loan will mature in April 2023. Natalie and James have started to do their research: the new rates the banks are offering them are just under 6%. Their monthly payment will therefore increase to nearly 1,800 pounds.

“At that price, five years ago, we would probably have considered that this house was not affordable”, testifies Mme Lobby. The couple – he works on his own in the installation of alarm systems for houses, she does replacements in secondary schools – is studying different options: extending the repayment period of the loan, moving to a smaller dwelling… In the immediately, he will start by reducing his expenses as much as possible. “We had to change one of our two cars this year. We’re going to push that back. We were lucky enough to take a great vacation every year. We will probably cancel. »

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More than elsewhere, the British real estate market is bearing the brunt of the surge in interest rates. Unlike France or the United States, where loans are made at a fixed rate for twenty or even thirty years, in the United Kingdom, they evolve according to the interest rates of the central bank. Out of 8.5 million households that hold a mortgage across the Channel, 2.2 million have a product that is directly indexed to the key interest rate, changing month after month.

Increase in reimbursements per household

The others have rates which are fixed for a short period only (between two and five years) and which must be renewed after this deadline. Over the next two years, 3.1 million households will have to renegotiate their rate, or around 130,000 per month, according to calculations by the Financial Conduct Authority (FCA), the financial regulator.

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For many households, the impact is violent. Mortgages with a two-year fixed rate, which hovered around 1.3% in 2021, have risen to almost 6%, says Dominik Lipnicki, who runs Your Mortgage Decisions, a loan brokerage firm. Result: the market is now completely sluggish. “The number of real estate transactions has collapsed and prices have started to fall”testifies Mr. Lipnicki.

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