The true cost of the mortgage crisis


Steven Brewis has already postponed his wedding three times and, thanks to rising interest rates, he is considering doing so again.

“We postponed our wedding due to Covid and we are thinking of doing it again because it’s hard to justify paying it if the mortgage goes up so much.”

He is just one of thousands of Londoners facing housing peril with life plans in tatters after lenders’ mortgage rates soared in the wake of the government’s mini budget.

Despite Chancellor Kwasi Kwarteng’s U-turn on abolishing the 45p tax rate, mortgage rates are unlikely to fall.

Like many people ready to get out of a low fixed rate mortgage, Steven, 49, found his repayments skyrocketing.

“Even with my decent salary, it will cripple us,” he admits. He works in data science and digital health and lives in a four-bedroom house in Chipping Ongar, Essex, with his fiancée, Rosanna, and their two children.

He has a £400,000 mortgage, which he is currently paying £780 a month for, and he has calculated that would rise to £1,980 a month if the rate rises to 6% as expected.

Steven grew up in the East End in the 80s and 90s and remembers his parents struggling with their payments when rates were 15.5%. “We almost lost our house,” he said. “I used to hear my mom crying because she couldn’t pay the mortgage, and it resonates now.”

Steven Brewis with his fiancee Rosanna

/ Steven Brewis

That he has to consider moving his wedding is upsetting and Steven considers all options; however, the sharp rise in the cost of living severely limits them.

He could set a lower rate sooner, before his contract is up, but his prepayment charge is £15,000. Pretty steep in all respects. Instead, he tries to overpay, but is also thwarted by rising energy, water, and food bills.

“I feel more and more rushed. Two years ago I could have paid £1,000 a month, now it’s £250 because the household bills have gone up too,” he says. “We had disposable income but now everything is out the window.”

London’s housing stock is estimated at £2.4 trillion and the house price to earnings ratio, which compares median house price to median gross annual income, is over 11.

This means that the average property price in London is 11 times the average wage, well above the rest of the UK, leaving Londoners particularly at risk in these difficult times.

“I constantly think about money”

More than a third of homeowners with a mortgage are couples with children. Liane, 33, and James Howard, 32, a personal assistant and mechanical engineer, live with their newborn daughter in a two-bed terraced house in Croydon.

They are terrified of what will happen when their fixed rate mortgage ends in July 2023, as they will also have to find money for childcare costs.

They are currently paying £1,300 a month, but if rates increased to 6%, their monthly payments would be £2,035.

“I’m constantly thinking about money and ways to reduce my expenses,” explains Liane, who is on maternity leave.

The house price to earnings ratio in London is above 11

/ Matt Writer

She had planned to return to work four days a week, but now plans to do it five days out of four because she cannot afford the pay cut. This means she will have less time with her first baby.

“Everything came at the same time; we got married last year, we had a baby and now there’s the mortgage,” she says. “You get the tiniest pay raise at work, but it gets wiped out quickly by everything that’s going on.”

“We can’t plan now,” adds James. “With child care costs and rising mortgage costs, it looks very uncertain at the moment.”

“If that rate runs out, we can’t afford it”

First time buyers Liam O’Neill, 26, and Emma Page, 25, are also struggling. They race against time before the house they long to live in is put out of their reach.

Liam, a policeman, and Emma, ​​a nurse, won an offer for a house in Medway, Kent. The whole process was particularly difficult for them because they live with their respective parents, miles apart, and their jobs involve shifts, which means they weren’t always there on Saturday for viewings.

It’s their dream to move into their own house together, but if that purchase fails, that dream will be snatched away. “It changes from day to day. If our mortgage offer [of 3.9 per cent] doesn’t work, the house just isn’t affordable for us,” says Liam.

The couple know they have their rate, but they worry about how rising interest rates will affect people higher up the chain.

“People we buy from have to pay mortgages in the 5.1% bracket,” Liam added. “They could give up. There are no promises…I would love to try and keep looking for something, but the reality is if that rate runs out we can’t afford it. This takes the possibility out of our reach.

“If prices go down, all our savings will be lost”

Alex Lawson

/ Adrian Lourie

Alex Lawson, 27, an engineer in the renewable energy industry, is another who fears the worst. She sold her home in Scotland in July and she and her partner won a £660,000 offer on a two-bed Victorian terraced house in Hither Green, south-east London.

Alex’s budget was originally £700,000 but with successive interest rate hikes it was reduced by £40,000 as the payments got too high.

She got their current mortgage offer of 3.71% four weeks ago. “I looked at what a new app would be now and it’s 4.2/4.4% that we can’t afford.” However, the worry for her now is a property price crash – she has a 15% deposit and is likely to have negative equity.

“I fear that if prices fall by the 15% expected, all of our savings will be wiped out.”

“We feel stuck”

Charlotte Dale

/ Adrian Lourie

All over the market, shock waves are being felt. Londoners trying to buy their family home forever find that possibility even more out of reach.

Charlotte Dale is PR for real estate agent Allan Fuller and started renting with her husband in their favorite neighborhood, but says, “Now we feel stuck.”

They sold their property in south-east London last year and live in Richmond, where they want to buy, with their two young children.

Rents in London rose 20% in the first quarter of this year and rent payments are increasingly likely to eat away at Charlotte’s capital for her dream home.

They backed out of a house sale in June because sellers demanded an extra £10,000. “Interest rates weren’t even on my mind at the time,” she said.

They found another flat last week and got an offer accepted, but Charlotte worries they’ve moved out too late and no longer meet lenders’ affordability criteria. “I’m afraid it’s high [in June] and the new monthly payments will be even higher.

Over the next few months, more and more London homeowners will be affected as they exit their fixed low rates or decide to move house.

Only time will tell, but if some forecasters are right, this mortgage crisis could soon be comparable to the cost of living crisis.