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Anyone who wants to know what the abstract message of a key interest rate hike means in everyday life is best to talk to people like Mary Lorimer these days. We meet the sprightly 59-year-old Brit with the green handbag in south-west London on her way to her bank.
“I no longer know how to pay my bills. I only wash at night or at the weekend when electricity is a bit cheaper. Everything is getting more expensive and now interest rates are rising. How am I supposed to pay for that?”
The retail employee is one of tens of thousands of homeowners who are trying to talk to their bank these days. Anyone who takes out a new two-year mortgage in London these days has to reckon with an interest rate of six percent. According to the Institute for Fiscal Studies, an economic institute in London, well over a million homeowners could lose a fifth of their disposable income because of the interest rate hike.
Is the textbook wrong?
People who own a house tend to be among the wealthy in Switzerland. Not so in the UK. Tenants are a minority in the UK. Almost 70 percent of Brits own a home; often financed with short-term mortgages of one to two years.
Mortgage interest rates are currently rising around the world, but significantly more so in the UK than in France, Germany, Ireland or Belgium. Despite this, the government acts as if inflation and rising interest rates are a natural phenomenon, like the weather, over which it has no control.
It is now important to keep calm and everything will be fine, announced Prime Minister Rishi Sunak. In order to reduce inflation, the money supply must be reduced and therefore the interest on loans must be increased. That is his fiscal policy message, put simply. That may be true according to the economics textbook, but people’s concerns are not some abstract coefficient of a mathematical equation.
government could be punished
Especially not when the bill doesn’t add up at the end of the month. More and more homeowners are therefore asking for help from the state. But the British Chancellor of the Exchequer, Jeremy Hunt, dismisses the idea. The only thing he could offer the British after a crisis summit with the British banks last Friday is twelve months of grace. “The banks have assured me that there is a 12-month grace period before a house is evicted,” Hunt said.
Cold consolation for troubled homeowners. Experts assume that 1.5 million Britons will have to renew their mortgages by the end of the year and could reach their financial limits in the process. Many of them see rising interest rates not simply as an unpredictable coincidence, like a rainy Sunday, but as a result of government incompetence. Initial polls show that this could be a massive political burden for the Conservatives in the coming election year.