[ad_1]
A leading debt charity has warned of a potential “cliff edge” for Britons making mortgage repayments amid rising interest rates.
On Thursday, the Bank of England confirmed the base interest rate in the UK would increase to 1.25% – a 13-year high – in an attempt to limit the rise of soaring interest rates.
Read more: FTSE 100: Tesco sales drop amid ‘unprecedented increases in cost of living’
It came in response to predictions that inflation will surpass 11% by the end of the year when the energy price cap hits £2,800 amid the deepening cost-of-living crisis.
Inflation is already at a 40-year high, hitting 10% in the 12 months to April 2022 and pushing up the cost of essentials like food and fuel.
Debt charity StepChange told Yahoo News UK that those who have mortgages could see a heavy impact on their repayments.
“For people who are on existing debt solutions, who have mortgages, or who are coming newly to debt advice and have mortgages, it’s fairly likely that they may see some of the impact of this playing out a bit more directly than on other kinds of debt – especially if they are just rolling off the end of a fixed-rate deal,” said Sue Anderson at the charity.
“So, that’s the most obvious place where we’re going to see some cliff edges – where people experience a much higher mortgage payment than the one they were paying before.”
StepChange is also worried that these mortgage repayment increases will “realistically” drive more people into debt.
“Among our clients at the moment only about 15% are mortgage holders – so, I suppose, one of the things we’ll be looking at, over the coming months will be whether that proportion goes up,” said Anderson.
Read more: Interest rates: Higher UK inflation will trigger multiple hikes, warns BoE economist
Debt is a rising issue in the UK, with StepChange reporting they were contacted by almost half a million Brits seeking debt advice or guidance in 2021. And while many homeowners are set to be hit by interest rate rises, Anderson said that the spectre of higher inflation causes the most significant problems.
“It’s inflation that creates the whammy,” said Anderson.
“If you’re on a low income that isn’t going up but your costs are, that’s the thing that’s really impacting the cohort of people that we worry most about – people who have very little in the way of financial resilience and very low incomes. “
On Thursday, consumer magazine Which? Money, warned that homeowners on variable mortgages will be among those feeling a new squeeze.
“This base rate increase will have an impact on mortgage holders and savers, at a time when money is tight for millions of households,” said Richardson.
“Mortgage borrowers on fixed deals won’t see any change to repayments, but those on a tracker or variable rate mortgage could see their rates increase.”
Rishi Sunak has insisted “strong growth will return”, despite warnings from the OECD that the UK faces the second worst economic growth in the G20 – behind only to Russia.
Read more: Cost-of-living crisis ‘will get worse before it gets better’ after interest rate hike
“Firstly the Bank of England who have a good track record of keeping inflation at two percent,” Sunak said. “Secondly I will make sure we manage our borrowing and debt responsibly so we do not make the situation worse and push up people’s mortgage rates higher than they otherwise would be.
“Lastly we are doing things like moving people off welfare into work or increasing the supply of energy which will ease some of the supply chain issues we are seeing, so taken together people should have confidence and return back to strong growth.”
Watch: Rishi Sunak: inflation will ease and ‘strong growth will return’
[ad_2]
Source link
