When I was 14, my parents separated. It was an amicable farewell – as much as that is possible – and my mother bought a property five minutes down the road from my father’s to avoid my younger brother and I being uprooted.
Unfortunately, it coincided with one of the biggest financial crises I have ever experienced in Sweden, where I grew up.
Mortgage interest rates shot up to around 13% (from 1% and 2% last year) and unemployment spread. My mother was fired.
What followed was a really tough year. My parents did what most parents would do and protected us from how bad it was. But I now know that there were days when they skipped meals or ate porridge, bills went unpaid, and they had many sleepless nights.
I remember my father bringing it home a cookbook about the number of ways you can cook a meal with Just Potatoes: Meatballs served with potatoes, boiled potatoes, hash browns, new potatoes with sweet potatoes baked in the oven.
My own circumstances are very different from those my mom and dad went through, but economic downturns always bring me back to that time.
While interest rates are nowhere near double digits, in recent weeks we have seen mortgage rates escalate to levels not seen in 14 years. According to data provider Moneyfacts, the average two-year fixed-rate mortgage was 3.95% in August and is now 6.52%.
This has added £297 a month to a £200,000 mortgage.
It was such a worrying time for all mortgage holders that few batted an eyelid when the energy price guarantee went into effect on October 1st.
Because the energy subsidy should relieve households for two years.
But this week, the new chancellor, Jeremy Hunt, announced that the price freeze would be shortened and only last until April next year. It is then replaced by targeted support for those most in need.
Although we don’t have more precise details yet, many households are at risk of being left without help.
The average energy bill is currently £2,500 per year. Once the price guarantee ends, we revert to Ofgem’s energy price cap, which changes every three months.
Advisory firm Auxilione predicts energy bills could reach £5,078 from April 2023. RBC Capital Markets is forecasting £4,684 a year, the Resolution Foundation forecasting £4,000 a year, while Investec is forecasting £3,923 a year. And Cornwall Insights, which has been cited so many times this year for making its predictions, suggests it will hit £4,347.
If you choose the latter, that’s a 74% price increase compared to what households are paying now.
If that’s not enough to tip some households over the edge, a massive increase in monthly mortgage payments certainly will.
As millions of families see their current fixed-rate mortgages coming to an end next year, it’s the perfect storm that could easily make this year’s “Terrible April” look like a walk in the park compared to the April we’re about to face.
And with the property tax cut being postponed indefinitely, there will be little to soften the blow.
We’ve grown accustomed to daily headlines screaming about the millions of homes that are struggling. To someone not directly concerned, it can sound so far away, as if we are talking about people in a distant land and not you or a neighbor. But nobody is immune.
I had a very fortunate upbringing, with annual trips abroad, horseback riding and dance classes. A typical middle class life. My parents owned property, had good jobs, but they were still on the brink of financial ruin.
To this day, my mother still talks about that time in a hoarse voice and shudders. “Do you remember those days?” she says. And I still can’t eat hash browns.