British homeowners rent out rooms in the face of high mortgage rates

In the UK, homeowners are renting out a room in their house to earn extra money amid a cost-of-living crisis that has pushed mortgage rates to record highs.

More than one in ten (12%) London homeowners have started renting out a room in their home to generate extra income in the past year, according to the Barclays Consumer Spend report.

This trend is not limited to the capital: around 3% of homeowners across the UK also rent out a room in their property to earn a little extra money.

In the UK, homeowners are particularly affected by the cost of living: according to figures from Uswitch, the average interest rate for a two-year fixed-rate contract is currently 5.74%, while for a five-year contract it is around 5.24%.

According to banks, borrowers would have to stretch their home loans to a term of more than 70 years to be able to afford the same mortgages that were offered just two years ago.

Mortgage rates have risen sharply after the Bank of England raised rates to a 16-year high in an effort to curb inflation.

Data from the Barclays report shows that one in six (16%) are not confident about their ability to make their mortgage or rent payments, and 18% of mortgage or rent payers are adjusting their spending habits to cope with rising housing costs.

Nevertheless, consumer confidence in their overall household finances remained stable at 67% in March.

Jack Meaning, chief UK economist at Barclays, said: “With the Bank of England expected to cut interest rates from June and banks responding by cutting mortgage rates, our research suggests that housing costs, which have been weighing on consumers for over a year, are about to turn and start to drive spending from the second half of the year and beyond. Today’s data shows that this transition is happening in real time.”

Higher mortgage rates have also impacted the property market. According to the UK’s largest mortgage lender, house prices fell in March for the first time in six months due to rising mortgage rates.

A typical home currently costs £288,430, about £2,900 less than last month, Halifax said.

Household spending on home improvement and electronics fell by 5.2 percent in March, and one in six (16 percent) were waiting to make renovations due to current economic pressures.

Bad weather weighs on consumer spending

Growth in consumer credit card spending stagnated in March as wet weather dampened both retail and restaurant sales.

Retail sales were almost flat at 0.7%, reflecting falling spending in stores. Physical retail (excluding food) saw a 2.1% fall and clothing trade saw a -1.8% decline as spring showers deterred shoppers from hitting the high streets. Meanwhile, restaurants had another difficult month, falling 12.6%, matching February’s drop (13.4%), according to Barclays.

The story continues

Forty-five percent of consumers said they continued to limit spending on nonessential items. The majority of this group (53 percent) reduced purchases of clothing and accessories, and nearly half (47 percent) spent less on restaurant dining.

Britons are more concerned than ever about the cost of everyday items, with concerns about general inflation rising to 87 percent.

Karen Johnson, head of retail at Barclays, said: “Retailers were braced for a more subdued start to 2024 and the latest figures are in line with expectations. The wet weather was a major factor in the decline in discretionary spending as it meant fewer visits to the high street and food and drink outlets.

“However, despite this initial lull, many retailers are confident that spending will pick up again in the coming months, particularly in anticipation of better weather, the reduction in the energy price cap, an increase in the national minimum wage and the excitement surrounding major events such as Taylor Swift’s Eras Tour and the 2024 Paris Olympics.”

Easter boosts retail sales after a difficult start to the year

A separate report by the British Retail Consortium (BRC) and KPMG Retail in March showed a more optimistic view of the UK retail sector.

According to the British Retail Consortium (BRC)-KPMG Retail Sales Monitor, total retail sales in the UK rose 3.5 percent compared to March last year, above the three-month average of 2.1 percent and the 12-month average of 2.9 percent.

Grocery sales rose 6.8% year-on-year, reflecting the unusually early Easter and the subsequent surge ahead of the long weekend.

Easter also boosted sales of products such as cookware and tableware as people prepared to entertain family and friends. Home textiles such as throws and cushions were also popular as consumers looked to spruce up their homes ahead of spring.

Elsewhere, wet weather dampened sales of garden furniture, barbecues, home improvement products, and clothing and footwear.

Despite strong performances in home accessories, health, beauty and housewares, online sales continued to decline, falling 1.4%.

BRC chief executive Helen Dickinson said: “After a difficult start to the year, retailers are confident that with the warmer weather on the way, consumer confidence will rise again.”

“A strong retail sector can boost investment in our cities. Now, as we prepare for the general election, it is vital that the next government recognises this and rethinks the pressures on retail.”

Attention: London property prices are rising in the “race for space”

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