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The 30-year fixed-rate mortgage is one of America’s secret weapons, because it makes inflation an ally of the homeowner who locks in a low rate, and ends up paying a decreasing share of their income toward their mortgage as the years pass. In the entire world, only the United States and France (!) have 30-year fixed-rate mortgages.
But in the UK, “fixed” means fixed for a number of months, or maybe a year or two – and then the rate is variable. Which means that the rapid rise in interest rates is going to hammer most of the world, who have been making their calculations under the assumption that low interest rates were here to stay. This is a brutal multiplier on the inflation afflicting the world’s economies, and it may lead to some pretty drastic unintended consequences.
Rising rates are also extremely damaging to real estate investors, who, unlike residential homeowners, do not have access to 30-year fixed-rate financing. The end result is going to be quite a lot of turmoil in the real estate markets, all the way from new-build constructions to purchases and refinancing.
In the UK, they are suggesting that mortgage rates have now reached as high as they will go, but I reckon the Green Cult will continue to force everything higher. I welcome your prognostications!Published in