As UK housing costs soar, anxiety grips homeowners and renters: ‘I’m in meltdown’

July 18, 2023   -LONDON (AP) — For Sadie James, the cost-of-living crisis in Britain just never seems to ease.

First, it was skyrocketing energy and food costs stemming from Russia’s invasion of Ukraine. Now, the 61-year-old worries whether she can keep a roof over her head.

James, who lives in south London, has struggled for years to stay on top of her finances. Just as she was starting to clear her debts, she’s back to square one: Her rent keeps rising, and on top of higher food and energy bills, her welfare payments just can’t keep up.

“I’m actually in a meltdown each time I think about it,” said James, who cannot work because of underlying health problems. “I’m literally depressed, I’m angry, I’m totally overwhelmed about it because I don’t want to lose my home.”

Interest rates have risen rapidly in recent months, which in turn have ratcheted up mortgages and rents across the United Kingdom. Rates have hit 5% after being below 1% for the past decade as the Bank of England has tried to bring down the highest inflation in the Group of Seven major economies.

As is often the case, the poorest households are bearing the brunt. The rate hikes have led to the biggest fall in household wealth in Britain since World War II, according to new research from the Resolution Foundation think tank.

Unlike the United States, where many mortgages are fixed for up to 30 years, U.K. 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 due to expire by the end of next year, with around a million households facing a 500-pound ($655) monthly increase in their average mortgage repayments by 2026, Bank of England Gov. Andrew Bailey said.

That has put pressure on both Bailey and Prime Minister Rishi Sunak, whose hold on power is tenuous ahead of a likely general election next year. Making it more expensive to borrow is how higher interest rates help lower inflation — people potentially spend less, reducing demand and pressure on prices.

Though inflation has eased from a double-digit peak last year, it’s still stubbornly high at 8.7%, and the central bank is expected to keep hiking rates — already at a 15-year high. That has led to mounting fears of the economy sinking into recession.

Many landlords facing higher mortgage payments want to pass on those costs to renters. A dearth of rental options doesn’t help either.

James says her landlord, a London housing organization that manages affordable rental homes for lower-income tenants, has raised her rent yearly and most recently declared a 4% bump to 170 pounds ($223) a week. For James, who is barely managing to cover her other bills, the rent increases seem relentless and she is terrified of being evicted.

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

Despite the sharp increase in mortgage rates, renters have struggled to afford their housing to a greater degree than homeowners, according to Britain’s statistics agency. Renters typically spend a higher proportion of their income on housing costs, it said.

Jon Taylor, a debt manager at the charity Christians Against Poverty who has helped James, said his organization has seen a large increase in the number of people in rental debt in the past two years. Almost half of the charity’s new clients seek help paying their rent.

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