Mortgages could surge by £1,000 a year, warns Rishi
MORTGAGE payments could jump by more than £1,000 next year in a further cost-of-living blow, the Chancellor has warned.
Rishi Sunak told the Cabinet he expected the base interest rate set by the Bank of England to hit 2.5 per cent as it seeks to tackle inflation.
Economists say this would drive the interest due on typical home loans from 1.6 per cent to 3.2 per cent at the end of the year and to a peak of 3.6 per cent in mid-2023.
This would be the sharpest rise since 1990 and could push house prices down.A one per cent increase on a typical mortgage would result in an extra £700 a year for those not on fixed-rate deals.
But there were warnings last night that the increase could be far higher.
Lewis Shaw, founder of Shaw Financial Services, said a mortgage of £200,000 at a rate of 1.6 per cent over 25 years would have payments in the region of £809 a month.
But at 3.2 per cent monthly
payments would hit £937. He added: “That is an annual increase of £1,536 or, more worryingly, £30,744 over the remaining term.”
There are fears rising mortgage payments will force house prices down as people cannot afford to buy. Analysts at Capital Economics predict a five per cent drop over 2023 and 2024.The BoE’s Monetary
Policy Committee has raised the base interest rate to 0.75 per cent – up from 0.1 per cent in December.
It is expected to hike the rate to one per cent to try to stem inflation, which rose by seven per cent in the 12 months to March.
And the Office for Budget Responsibility has suggested the war in Ukraine could push inflation
to a 40-year high of 8.7 per cent in the final three months of 2022.
But higher interest rates should spell better news for savers.
Rachel Springall, of Moneyfacts, said: “The top rate tables are experiencing a positive uplift and there is hope rates will continue to rise.”