Interest Rates are Going Up, Leading Whole Economic Sectors to Boom
The political instability in the UK has dominated the news recently, and somehow the ravaging economic crisis was left to play second fiddle as if it’s not the sole perpetrator of the turmoil on Downing Street 10. While the Tories are changing prime ministers like handkerchiefs during a flu outbreak, the inflation rates have been steadily and surely breaking through the roof, reaching a 40-year-high. All countermeasures have proven futile, as former prime minister Liz Truss admitted and apologized for the horrific budget, she introduced just several weeks earlier.
“Now I recognize we have made mistakes. I’m sorry for those mistakes, but I fixed the mistakes. I’ve appointed a new chancellor. We have restored economic stability and fiscal discipline,” Truss told the BBC.
Needless to say, however, the blow to the economy was huge, and with the rapid rising of interest rates by the Bank of England, the last bastion of stability, the housing market began sinking as well. In under 12 months, the interest rate has increased by 3000% from 0.1 in December 2021 to 3% since November 2022. This increased mortgage interests of non-fixed-rate mortgages significantly and almost doubled the interest rate for new fixed-rate mortgages. So now, instead of paying a 2.57% interest on their loan, as it was in March 2021, loan receivers will have to pay 5.17% interest. This means that, on average, a person with a 25-year mortgage plan of £100,000 was paying £424 monthly back in the summer of 2022. With the Bank of England planning to increase the base interest rate to 6% by summer 2023, a mortgage receiver will have to pay as much as £644. This spells disaster for many, who can barely afford to stay afloat in these troublesome times.
The Housing Crash is Inevitable.
The housing market crash was expected ever since the inflation rates went out of control with the start of the Ukrainian war. However, the market stayed strong until July, when it peaked. Come August, the market slowly but surely began losing ground, and by the end of October, it lost half of its increase on a yearly basis. Experts are adamant that this fall will continue with the expected additional interest rate raises throughout the following year. As a result, more and more people will find themselves unable to cover their mortgage expenses and try to cut their losses by selling their properties. However, with most banks already ceasing most mortgage products they offer, the demand will shrink even further. Naturally, high offerings and low demand will drive housing prices to the gutter, with many forced to move out without any plan or stable solution for their future.
Not All is Lost
While the housing market will surely suffer, this has been expected ever since the Covid lockdowns. With many fleeing the South East in search of a better cost of living, the massive increase in the supply of properties on the market, especially in London and the South East, was inevitable. The increased interest rates will give an alternative to people who spent their savings, trying to save them from inflation, driving it even higher. This will stop the rapid price increase, giving some much-needed stability in other markets. In time the housing market will get back on track, as experts predict this could happen as early as 2024. Yes, the winter will be challenging, and there are some pretty unpleasant times ahead, but not all is lost, and there is a light at the end of the tunnel. For some industries, this unfortunate turn of events is even a booster, as the increasing interest rates and the housing market collapse will lead some home services to boom.
Storage Businesses will be More Needed Than Ever.
During a volatile market, people often are forced to downsize their homes. As unfortunate as that is for them, this is truly a holiday for storage unit lenders. People tend to live as large as their property allows them. This means that if you have free space, you will fill it up. Whether with some objects that have no real value, except the one that you assign them with, or with stuff you think you will need but ultimately only take place, homeowners always have way too many belongings. When downsizing, people almost always think of the bright future when they will once again afford bigger and better living quarters. Thus, they prefer to keep their stuff in a safe place. Therefore storage units will bank from this natural human response to change.
Removals Companies are Also Among the Winners.
Removal companies will also experience limited benefits from the harsh situation. Although not many people will move to new, privately-owned homes, many will prefer to change their rentals, especially if their lease is about to end. Unfortunately for renters, the demand on the market will increase with more people unable to pay for their mortgages. This will drive prices up, and with energy bills already high in the sky, landlords are just waiting to add some extra charges on periodic tenants and those whose long-term fixed contracts are about to expire. As a result, rent is expected to increase by 11% in the following year. According to SimplyBusiness.co.uk, The average tenancy rent for London in 2022 was £1,832 per month. With an 11% average increase, this means that next year tenants will have to pay, on average, no less than £2K. However, in London, the rental price growth is expected to be even higher, as some sources predict an increase of 18%. This means that new renters will have to pay more than 2,150 a month for the “pleasure” of living in London. Naturally, these numbers depend on the area.
On the contrary, on a national level, the rents are rising slower and, on average, excluding Greater London, a month of renting a home costs £830. The highest average price is for those living in the South East, who pay on average £1,190, while those living in the North East pay more than 50% less, with an average of £588 per month.
Needless to say, many would prefer to relocate to new, more cost-friendly areas where they can live without fear of bankruptcy every month. This can already be seen as London is experiencing its most significant population loss in a decade. Thus removal companies will have one truly enormous pool of clients seeking a secure and efficient way to transport their belongings.
End-of-tenancy Cleaners will be the Biggest Winners.
With such a massive number of people leaving rentals and relocating, the end-of-tenancy cleaning sector is sure to profit. While landlords can no longer insist tenants pay for professional cleaning, many renters prefer to ensure their deposit. According to Fantastic Cleaners, one of the biggest names in the end-of-tenancy cleaning industry, most people prefer to call such a company because it’s much more efficient, and they typically guarantee their deposits back. Deposits are usually equivalent to one or one-and-a-half monthly rent. This means, on average, people have about 2 to 3 thousand pounds locked as a security deposit. A professional full end-of-tenancy cleaning costs, on average, between £180 and £210 for a single-bedroom apartment, depending on where you live.
Moreover, the price is not hourly but an end price, so no matter how long it takes, you will pay the fixed price. That’s precisely why people prefer to make this small charge instead of slaving several days to clean the house up to professional standards. So naturally, with such a surge in rental changes, end-of-tenancy cleaning providers will be the biggest winners of this otherwise hard winter that’s coming.
The Silver Lining is What Keeps Us Afloat.
While many might think these sectors profit from this unfortunate situation, the truth is entirely different. These sectors are what can keep the British economy afloat. The services sector is responsible for 82% of employment in 2022 and 79% of the total UK economic output. So while these sectors will have some profits out of the otherwise harsh situation we are in, this will ultimately help the majority of people keep their jobs and livelihoods and eventually bring our economy back on track.