“Households on display” High interest Rates around the World

“Households on display” High interest rates around the world

“Life has become so difficult that I can’t even eat out once a month.”

ennifer Hall (46) Vancouver

Jennifer Hall (46), who lives near Vancouver in western Canada, said this when asked what had changed with her interest rate hike. The problem was that he received a home mortgage loan worth 600,000 Canadian dollars (about 579.61 million won) at a variable interest rate five years ago. The interest rate, which was 2.7% per annum at the time of the contract, soared to the 7% range in June this year. As it became difficult to repay the interest, let alone the principal, he switched to a 5.8% per annum 3-year fixed interest rate product in August before the maturity date. Mr. Hall sighed, saying, “My monthly repayment has increased by 950 Canadian dollars (about 920,000 won) compared to five years ago.”

As the global economy has been shocked by the high interest rates and high prices that have continued for two years since last year, major changes are occurring in the lives of people in each country. About 10 people our reporting team met in the U.S., Canada, and Europe confessed, “Our lives have completely changed (due to recent changes in the economic environment, such as rising interest rates),” and “Our living standards are reminiscent of wartime conditions.”

“Households on display” High interest Rates around the World
“Households on display” High interest Rates around the World

Major countries ended the ‘liquidity feast’ by rushing to tighten austerity measures as the huge amount of funds released into the market during the Corona period raised prices. Although central banks around the world have raised interest rates at an unprecedented rate, ‘sticky inflation’ continues, with living prices rarely falling. As a result, the high interest rate trend continues ‘higher for longer’ and is causing pain to economic entities around the world. As interest burdens rise, domestic demand recession and consumption contraction are occurring in each country, and there are concerns of a chain shock to asset markets such as commercial real estate. There are even predictions that the crisis of bankruptcies among marginal companies with growing debt burdens will spread to insolvency in the banking sector.

Professor Emeritus Kim Jeong-sik of the Department of Economics at Yonsei University said, “Even if major countries lower their interest rates from the second half of next year, it is difficult to return to the ultra-low interest rates as before.” He added, “Everyone will suffer if we fall into a long-term recession due to high interest rates, so efforts are needed to increase the growth rate by fostering new industries.” “It does,” he explained.

“My husband spends 40% of the money he earns every month just to repay the mortgage, so there is no such thing as a wartime situation. “I have no choice but to tighten my belt.”

Ana Hill (55),Boadilla del Monte

Ana Hill (55), a housewife living in a townhouse in Boadilla del Monte, a suburb of Madrid, Spain, increased her loan size during the period of low interest rates following the global financial crisis and repaid a total of 300,000 euros (approximately 425.58 million won) at a variable interest rate. I’m doing it. As interest rates rose, the increased debt returned like a boomerang. The monthly repayment amount, which did not exceed 1,000 euros (about 1.42 million won), increased to 1,460 euros (about 2.07 million won).

Spain’s financial consumer protection organization ADICAE has recently been inundated with inquiries from ‘young people (who borrow with their souls)’ like Mr. Hill. Most of them are intended to reduce the burden of repayment, such as changing a variable interest rate loan to a fixed rate or repaying the principal early. This is because the 12-month Euribor (European interbank interest rate), which is the standard for calculating variable interest rates, soared from 0.961% in early July last year to 3.902% in early December this year. As of October this year, Spain’s proportion of variable interest loans was about 75%, which is higher than Korea’s (58.4%).

Canada, where household debt has rapidly increased since the global financial crisis, is also facing a serious impact from high interest rates. According to the International Finance Institute (IIF), Canada’s household debt to gross domestic product (GDP) ratio in the third quarter of this year (July to September) was 102.9%, ranking third in the world. It is higher than Korea (100.2%, 4th place).

“The impact of high interest rates is only just beginning,”

Shana Lee, mortgage specialist at Royal Bank of Canada (RBC).

 He said, “There are a lot of customers who were ‘frustrated’ in 2020 and 2021, when the interest rate on mortgages fell to 1.1%. Customers who signed contracts with variable interest rates at that time are currently paying interest close to 6%, and the interest rate has increased significantly, so the principal amount has decreased. “I’m in a situation where I can’t even repay,” he explained. According to the Canada Mortgage and Housing Corporation (CMHC), the delinquency rate of large mortgage holders who borrowed more than 850,000 Canadian dollars (about 821.11 million won) jumped from 0.08% in the third quarter of last year to 0.13% in the second quarter of this year (April to June). did.

America’s middle class is also suffering from high prices and rising rents. Fred McNulty (30), who runs a startup in New York, moved to the ‘Washington Heights’ area in the northern part of Manhattan this spring. At the time of the novel coronavirus infection (Corona 19) outbreak in May 2021, the monthly rent for a studio (one room without a room) in Harlem, which was $1,660 (approximately 2.16 million won) per month, decreased by 20% to $1,970 (approximately 2.57 million won) two years later. I ran close. Mr. McNulty met with a reporter and said, “I currently found a two-bedroom apartment in the area for $2,550 (approximately 3.33 million won) per month,” and “I am in a better financial situation.” Eating out habits have also changed. Before the pandemic, a simple lunch in midtown Manhattan (city center) could cost $7 to $15 (about 9,000 to 20,000 won) per person, but now it costs about $15 to $20 (about 20,000 to 30,000 won). It was said that the burden increased because a tip of about 20% was added.

In the UK, where the interest rate renewal cycle is relatively short, it is estimated that 1.5 million fixed-rate mortgages will mature by the end of the year. This year, UK mortgage interest rates have soared, and in July, the average two-year fixed interest rate soared to 6.66%, the highest level since 2008. The British think tank National Institute for Economic and Social Research (NIESR) analyzed that 1.2 million households will run out of savings by the end of the year as interest rate increases will increase mortgage repayments.

There are frequent cases where the impact of rising interest rates is passed on to tenants. In July of this year, UK housing rents rose by the largest amount (5.3%) since statistics were released. Park Gyeong-min (26), an office worker working in the UK, explained, “There are cases where monthly rent in the area goes up by 400 pounds (approximately 660,000 won) at once.”

In the United States, generational conflicts are appearing due to the impact of high-intensity austerity. Unlike middle-aged people who bought a house during a period of low interest rates, young people find it difficult to buy a house and raise a family at high interest rates. Mr. McNulty complained, “Baby boomers could buy a house at low interest rates and one of the couple could take care of the family at home, but for our generation, it is impossible to make a living without two incomes.” 

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