Households braced for mortgage shock ahead of rates hike as cost of living crisis deepens
Fresh warnings over the cost of living have been issued as millions of households could face a huge mortgage shock.
Trade body UK Finance has said one in four mortgage borrowers on variable rate deals will be affected by an anticipated rates rise, The Telegraph first reported. The Bank of England is anticipated to hike interest rates on Thursday from 0.25 per cent to 0.5 per cent in an attempt to stall inflation.
Threadneedle Street hiked rates for the first time in over three years at the end of last year.
Inflation is set to peak at seven per cent, the highest level it has been in 30 years. It hit its highest rate in nearly three decades, reaching 5.4 per cent in December last year.
Huge Jump in Costs
Inflation has also surpassed the Bank’s own target of two per cent. Households could see a jump of almost £600 over the next couple of years, UK Finance told the Telegraph newspaper. A hike would represent an additional £24 a month for the average borrower on a £200,000 two-year tracker deal. This will represent a further £580 across the entirety of the deal.
The predictions come as the country is facing a cost of living crisis, with skyrocketing gas and electricity bills. The decision will precede an announcement from energy regulator Ofgem on 7 February, when the energy price cap will be hiked. It is thought that the price cap could be hiked as much as 50 per cent, the equivalent of £2,000 per year for average use.Brits are also anticipating a tax bill increase this spring after the Prime Minister and Chancellor have stood staunchly by plans to hike National Insurance payments.
A 1.25 percentage point increase, engineered to tackle a Covid-induced NHS backlog and reform social care, is set to further pile the pressure on households. Writing in The Sunday Times yesterday, Boris Johnson and Rishi Sunak defended the policy and described it as a “progressive” one. “We must clear the Covid backlogs, with our plan for health and social care – and now is the time to stick to that plan. We must go ahead with the health and care levy. It is the right plan,” they said. “It is progressive, in the sense that the burden falls most on those who can most afford it.
“Every single penny of that £39bn will go on these crucial objectives – including nine million more checks, scans and operations, and 50,000 more nurses, as well as boosting social care.”
Prices of daily goods have also soared as retailers and manufacturers struggle with a labour squeeze and their own rising production and shipping costs. Food prices were 2.4 per cent higher in comparison to last year, the fastest rate of growth since March 2019, the BRC said.
Helen Dickinson, chief executive of the BRC, said: “Food prices were falling earlier on in 2021, but the acute labour shortages across supply chains, amongst other factors, led to the year ending with a notable increase; for example, fresh food saw the largest rate of inflation in almost a decade.”
Think tank the Resolution Foundation found the average household in the UK is likely to experience their bills increasing by £1,200 this year. The organisation has described the year ahead as the “year of the squeeze”.
Source: City AM
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