More Pain but No Gain for UK Households
The Bank of England (BoE) expects inflation to peak in the spring of 2022 to over 7.25% from the current level of 5.5% in January 2022. Reasons cited for heightened inflation are rises in energy prices as well as the Coronavirus Disease (COVID-19) pandemic-induced supply chain issues. The BoE has signalled that additional rate raises are likely, given the updated outlook for inflation. DBRS Morningstar analysed a sample of 543,000 loans across 57 UK mortgage portfolios and, in this commentary, we discuss what impact rising energy costs, interest rates, and the general increase in the cost of living may have on mortgage borrowers from low- to higher-income UK households.“Due to the rising cost of living with limited real wage growth, personal finances have been stretched more than ever in past two decades, especially in the UK, which has experienced higher energy and fuel costs, higher debt financing costs, and increases in some taxes (e.g., National Insurance). The situation may become more serious as some borrowers face issues with debt servicing”, said Mudasar Chaudhry, Head of European Structured Finance Research at DBRS Morningstar.
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