The cost of living crisis and mortgage rates - how is it affecting the UK?

We explore the ongoing housing situation and mortgage rates during the cost of living crisis.

For the past two years, the cost of living crisis has been on everyone’s lips - but it’s the housing crisis and mortgage rates that have been especially prevalent in recent discussions.

Earlier this summer, reports showed that house sales had slumped to their lowest in over a decade and that mortgage rates had hit a 15-year high. This means that the cost of borrowing money to purchase a home had increased significantly and, for those already paying mortgages, it could have resulted in higher monthly payments if their mortgage was variable-rate or if they needed to refinance.

However, with no further increase in the Bank of England base rate this month, things may not be quite as tough as they could have been, with news that five-year mortgage rates are now below 6%. Despite this, rates are still significantly higher than they were before the Truss mini-budget debacle and anyone refinancing their mortgage will still face a steep increase in costs, not to mention the plight of renters who have seen double-digit percentage increases in rents in a very short space of time.

In this article, we explore the ongoing housing situation and how we can help. 

The current situation

For people looking to enter the property market, higher mortgage rates could have made homeownership less affordable, potentially leading to higher monthly payments and possibly affecting their ability to qualify for certain loan amounts. Whilst those already on the ladder may have struggled to continue making repayments, with 1.5m likely to see their current mortgage deal expire by the end of 2024, it didn’t mean that it is necessarily a good time to sell, either. 

The number of landlords selling properties surged at least in part due to rising mortgage costs, which also put many renters across the country at risk. While this put more properties on the market for those who can afford to buy them, the forecast was bleak for homeowners and renters, buyers and sellers alike. And with the market like this, people are perhaps less likely to want to move as a result. 

With reports of mortgage rates falling in August, home buyers may have felt marginally more optimistic about purchasing a property. However, they are likely to make lower offers on properties because they are concerned about higher mortgage rates leading to increased monthly loan repayments over a long period of time. In this context, buyers might negotiate lower prices to mitigate the impact of the higher borrowing costs, making selling a risk in this climate. 

For first-time buyers, mortgage rates were around two-fifths of their take-home pay, around 30% up on the start of 2022. And the cost of buying a property doesn’t factor in the costs of home improvements. With high costs for everyday construction and maintenance items, the total value of maintenance and repairs is undoubtedly more than it was pre-pandemic due to inflation. This can prevent new buyers from joining the property ladder as even buying a ‘fixer-upper’ may be out of the question.

A further key issue for many would-be first time buyers is the size of deposit needed in order to secure a mortgage and therefore a property. Deposits have grown as house prices have increased, but have become ever harder to save for as increased rents left little to save even before the current cost of living crisis.

What about inflation? 

Research from the Office for National Statistics has shown that regular pay grew at record levels between April and June 2023 at 7.8%. While this may have seemed like good news for those with an increased mortgage or higher rent to pay, inflation remained at 7.9% and as a result, real wages still fell. Furthermore, interest rates were expected to peak at about 6%. 

Despite this, recent data has shown that inflation fell by more than expected, leaving the Bank of England to hold its headline rate at 5.25%. As of September 2023, things are looking more positive as UK mortgage rates are now expected to fall even further, making it more hopeful for borrowers for the time being.

Renters on the other hand continue to face increasing rents with 18 months of double-digit rental inflation. There are some signs that the position is becoming unsustainable, with property availability beginning to increase despite reports of landlords leaving the market, as tenants can’t sustain ever higher rents

Credit unions - an unlikely solution? 

Here at Great Western Credit Union, we help to build community wealth by providing ethical, fair and affordable finance that helps the local economy. We offer services that enable people to manage finances to help members break the cycle of debt and improve the quality of their lives. 

Credit unions historically provide services to disadvantaged areas of the community and put social impact at the heart of their mission. Furthermore, membership within credit unions tends to encompass all walks of society, who pool together to help make our region better off. 

In addition, loans and saving services can help members fund home improvements, which can help first-time buyers with any maintenance they may need. Loans can also be used for any unexpected repairs around the home at times when people may not have the savings to pay for it immediately.

In the longer term we’re also keen to explore how we can support community-owned and co-operative housing projects that could provide one way of addressing endemic housing issues and ever-rising inequality.


To learn more about our range of services, please email us or call 0117 924 7309 and our support teams will be available to help.  

Published by
Posted on
02 October 2023