(qlmbusinessnews.com Tues. 9th April, 2024) London, UK —
“UK Homeowners at Risk: IMF Flags Concerns Over Fixed-Rate Mortgages”
In a notable warning, the International Monetary Fund (IMF) cautions the Bank of England (BoE) about the potential repercussions of maintaining high interest rates, especially considering the prevalence of fixed-rate mortgages in the UK.
With a substantial portion of UK homeowners locked into fixed-rate mortgages, the IMF underscores the importance of the BoE exercising caution to prevent adverse outcomes. The IMF's forthcoming world economic outlook underscores the significance of the issue, revealing that the UK boasts one of the highest percentages of fixed-rate mortgages, a trend that surged in the decade leading up to the Covid-19 pandemic.
Despite the BoE's series of interest rate hikes between December 2021 and August 2023, which saw rates increase 14 times, the central bank has maintained a steady 5.25% borrowing cost since then. However, with a notable decline in the annual inflation rate from 6.7% to 3.4% since last summer, the IMF warns of potential challenges ahead.
The IMF highlights that the impact of higher interest rates tends to be subdued in economies with a high prevalence of fixed-rate mortgages. In the UK, where over 80% of home loans are fixed-term, concerns arise as more than 1.5 million fixed-rate mortgages are set to mature in 2024.
While acknowledging progress in achieving inflation targets, the IMF stresses that prolonged high-interest rates could lead to unforeseen challenges. As fixed-rate mortgages reset over time, households may face increased financial strain, potentially dampening consumption levels.
Furthermore, the IMF raises concerns about the private credit market, which has rapidly expanded to $2.1 trillion (£1.7 trillion) last year. With lending shifting from regulated banks to nonbank financial institutions, the IMF urges regulators to closely monitor this sector to mitigate systemic risks.
As the IMF underlines these potential risks, it underscores the need for careful policy considerations by central banks and regulators to ensure financial stability amidst evolving economic dynamics.
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