Mortgage shock for families as inflation hits 30-year high

MILLIONS of households face a mortgage shock of almost £600 over the next two years as rising interest rates intensify the cost of living crisis, new figures show.

The Bank of England is expected to raise interest rates on Thursday from 0.25 per cent to 0.5 per cent in a bid to curb inflation set to peak at 7 per cent, a 30-year high and more than treble the Bank’s official 2 per cent target.

The latest blow to household finances comes amid surging energy bills and growing pressure on the Government to cancel its planned £12 billion a year rise in National Insurance contributions for employees and companies, hitting the average worker by £255 a year.

The looming interest rate rise, widely predicted by City economists, will impact 2.2 million or one in four mortgage borrowers on variable rate deals, trade body UK Finance said.

The decision will mean an extra £24 a month in payments for the average borrower on a £200,000 two-year tracker deal, totalling an extra £580 over the lifetime of the deal.

The mortgage pain for variable rate borrowers is likely to worsen further still as financial markets predict official interest rates will rise to at least 1 per cent by the end of 2022.

Ray Boulger, senior technical manager at mortgage broker John Charcol, said: “Inflation looks like it will go higher than the Bank of England is forecasting and take longer to fall so interest rates are likely to peak above 1 per cent.

“Even after energy prices rise it is still going to be the biggest monthly outlay for people.

“The question is not whether to fix your mortgage, but how long to fix for.”

The Bank’s decision on Thursday will come days before Ofgem, the energy regulator, delivers more pain for households on Feb 7, with the lifting of the energy price cap, heralding steep increases in gas and electricity bills.