Last month the Bank of England clamored headlines with some significant changes to this familiar mortgage landscape. Millions of borrowers are soon going to be facing much bigger bills. This decision comes after the bank made four consecutive cuts to interest rates beginning last August. Now, as the financial landscape continues to change, the effect on borrowers is clearer than ever.
In one of the oddest turns in the world of international finance, U.S. President Donald Trump is calling for a depreciated dollar. He says this will increase U.S. exports and spur manufacturing job growth across the country. It’s worth noting that this year the U.S. dollar is down roughly 10% relative to most major currencies. This decline represents a noteworthy departure from its historical function as a haven during periods of economic uncertainty. The U.S. initiated a global tariff war that has made an already complex economic calculus far more challenging. Per the Bank of England, this war has heightened acute financial instability across the globe.
Well, in spite of all this noise, the global trade conflict so far hasn’t bitten hard on British families and businesses. This has sent the Bank of England into full defensive mode. They know that powerful, historic changes are underway as we speak within the world monetary system. That’s why the UK housing market is coming under especially close scrutiny. Over the next three years, about 3.6 million residential mortgages will be due for renewal. This is a staggering figure that currently accounts for 41% of all outstanding mortgages in the entire country.
As these fixed-rate loans are coming up for renewal, millions of homeowners are looking at an average monthly mortgage payment hike of £107. This increase poses a deepening crisis for UK families. Nearly 2.5 million households (28 percent of all mortgage holders) will see their bills go down over this period. The shadow adds complexities and varied impacts of the current financial climate.
To counter these changes, each bank and building society can opt out of a 15% cap on risky higher loan-to-value mortgages. The mortgage lending industry should be held to no greater a standard than this ceiling on the most dangerous home loans. This prevents shocks from being spread through the financial sector.
The UK government, unlike some other governments, is recognizing the urgency in this space. Recently, they have called on regulators to identify opportunities to increase economic opportunity during this time of unrest. Homeowners should brace for significant increases in the costs of mortgages. In doing so, they are acutely aware of how global economic trends affect the need for and implications of local financial policies.
