As UK housing costs soar, anxiety grips homeowners and renters: 'I'm in meltdown'

For millions in the U.K., the cost-of-living crisis just never seems to ease

For Sadie James, the cost-of-living crisis in Britain just never seems to ease.

First, it was skyrocketing energy and food costs stemming from Russia's invasion of Ukraine. Now, the 61-year-old worries whether she can keep a roof over her head.

James, who lives in south London, has struggled for years to stay on top of her finances. Just as she was starting to clear her debts, she's back to square one: Her rent keeps rising, and on top of higher food and energy bills, her welfare payments just can't keep up.

“I’m actually in a meltdown each time I think about it," said James, who cannot work because of underlying health problems. “I’m literally depressed, I’m angry, I’m totally overwhelmed about it because I don’t want to lose my home.”

Interest rates have risen rapidly in recent months, which in turn have ratcheted up mortgages and rents across the United Kingdom. Rates have hit 5% after being below 1% for the past decade as the Bank of England has tried to bring down the highest inflation in the Group of Seven major economies.

As is often the case, the poorest households are bearing the brunt. The rate hikes have led to the biggest fall in household wealth in Britain since World War II, according to new research from the Resolution Foundation think tank.

Unlike the United States, where many mortgages are fixed for up to 30 years, U.K. homeowners are more exposed to changes in the cost of borrowing because a large percentage of them have loans that need to be renewed every two or five years.

Around 2.5 million such deals are due to expire by the end of next year, with around a million households facing a 500-pound ($655) monthly increase in their average mortgage repayments by 2026, Bank of England Gov. Andrew Bailey said.

That has put pressure on both Bailey and Prime Minister Rishi Sunak, whose hold on power is tenuous ahead of a likely general election next year. Making it more expensive to borrow is how higher interest rates help lower inflation — people potentially spend less, reducing demand and pressure on prices.

Though inflation has eased from a double-digit peak last year, it's still stubbornly high at 8.7%, and the central bank is expected to keep hiking rates — already at a 15-year high. That has led to mounting fears of the economy sinking into recession.

Many landlords facing higher mortgage payments want to pass on those costs to renters. A dearth of rental options doesn’t help either.

James says her landlord, a London housing organization that manages affordable rental homes for lower-income tenants, has raised her rent yearly and most recently declared a 4% bump to 170 pounds ($223) a week. For James, who is barely managing to cover her other bills, the rent increases seem relentless and she is terrified of being evicted.

“It’s a nightmare, thinking they’re going to come one day ... lock my door and I can’t get in," she said.

Despite the sharp increase in mortgage rates, renters have struggled to afford their housing to a greater degree than homeowners, according to Britain’s statistics agency. Renters typically spend a higher proportion of their income on housing costs, it said.

Jon Taylor, a debt manager at the charity Christians Against Poverty who has helped James, said his organization has seen a large increase in the number of people in rental debt in the past two years. Almost half of the charity’s new clients seek help paying their rent.

"Already, the rent increases are astronomical here in London, and people can’t afford that,” he said. “There’s this group of people that would have just about been able to pay their rent, but it’s just not sustainable anymore. And so something’s got to give.”

The rising rates are not just affecting people on the breadline or on social welfare, he added. He’s also worried about workers who could easily be tipped into debt because they can’t cover the simultaneous increases in food, housing and energy bills seen since last year.

“I’m extremely concerned that we’re going to see more people coming to us saying, ‘We can’t pay the mortgage’ — people who you’d never have thought of needing that kind of help are now going to be struggling," he said.

The interest rate hikes have sent the average two-year fixed mortgage rate to 6.66%, the highest since before the 2008 global financial crisis.

Joanne Barker-Marsh, a single mother who cares for her teenage son with special needs, is trying not to think about February, when her fixed-rate mortgage is up for renewal. She is bracing for her payment to more than double.

“I will fly by the seat of my pants,” Barker-Marsh said. “I can’t even address this right now because I am terrified.”

The 51-year-old from Rochdale, in northern England, lost her job during the pandemic and relies on social services payments. She spends a third of her state benefits on the mortgage.

“I don’t have any spare cash, I don’t know where we’re going next," she said. "It will swallow up the majority of our social services payment.”

Bailey, the central banker, expressed hope that the country’s biggest banks are resilient enough to offer more help than they could before the global financial crisis. He said banks have more capital and are carrying far less debt than they did then, allowing them to offer struggling households more financial options.

Whatever options are available, the drip-drip of bad news doesn't help those fretting about where the cost-of-living crisis will go next.

“I don’t have a chance to catch up, to get better, because next minute there’s something else," James said. “And I don’t understand why.”