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Millions of Homeowners Face Mortgage Rise of £700!

Millions of Homeowners Face Mortgage Rise of £700!

Millions of households face even more cost of living pressure as there have been warnings of a 0.75 per cent rise in interest rates, which could increase mortgage payments by hundreds of pounds a year.

The plummeting value of sterling, which fell to a 37-year low against the US dollar, led to concerns the Bank of England could be forced to make its largest ever rise.

Such an increase – coming ahead of the new Chancellor’s planned fiscal statement – could add more than £700 a year onto the average mortgage.

And it would be introduced as households face increases in their energy, fuel and food bills.

The Bank of England’s Monetary Policy Committee (MPC), which is responsible for setting interest rates, is set to meet on Thursday. In August, it raised rates by 0.5 to 1.75 per cent.

But lower-than-expected retail sales as people grapple with the cost of living contributed to the pound plummeting today.

The fall in sterling, which came on the 30 year anniversary of Black Wednesday when the UK was forced to withdraw the pound from the European Exchange Rate Mechanism (ERM) after failing to keep up its exchange rate, could push up inflation – increasing the chances of an even higher interest rates hike.

Stephen Millard, deputy director of forecasting at the National Institute of Economic and Social Research, said a jump of 0.75 percentage points would be “rare” but “certainly possible”.

“A change of 0.75 percentage points in a base rate in one go is incredibly rare, and this increase is certainly possible,” he told i. “The situation with sterling dropping is a worry and could make the difference between whether the MPC opt for 0.5 and 0.75.

“If sterling falls the price of anything we import including energy goes up. This is likely to mean inflation rises which could mean they will have to put rates up more.”

He said those most affected would be people with mortgages.

“If your mortgage goes up to 2.75 (per cent) that is a hefty increase when you have a cost of living crisis to contend with,” he added. “If people have got used to low interest rates and they suddenly jump that can have a bigger impact than if you are used to higher rates and they go up.”

Peter Levell, associate director Institute of Fiscal Studies (IFS) added: “In general you would expect a falling pound to increase inflation, so if it is unexpected it might be something the MPC has to react to and it would add more pressure to raise the interest rates.”

He said the projected increase in inflation due to the pound falling would be dampened by the Government’s recent pledge to cap energy prices.

An increase of 0.75 percentage points would mean the average mortgage holder would pay £60 extra a month, or £720 extra a year.

With household finances already grappling with soaring costs, the predictions pile pressure on the Government to do more to help.

Prime Minister Liz Truss already outlined plans to cap the cost of energy bills at £2,500 a year and Chancellor, Kwasi Kwarteng, is due to set out estimated costs of this – as well as planned tax cuts – during Friday’s fiscal statement.

But new data from the Office for National Statistics (ONS) show almost half of bill-payers were struggling to afford higher costs in the summer – before energy prices increase further next month – leading to calls for the Government to do more to help those struggling.

The social trends data, published on Friday, revealed 48 per cent of adults who pay energy bills were already finding it difficult to afford them.

Sue Davies of Which? said it was “hugely concerning that many people are already struggling to pay their energy bills, even before prices go up again in the coming weeks”.


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