Over the past year, interest rates have been rising rapidly around the world. The post-COVID economic recovery and Russia’s invasion of Ukraine caused inflation to reach 10% or more in many countries. Central banks in the US, UK and Europe have fought back by raising interest rates in an attempt to cool the economy and return inflation to their 2% targets.
This has already hit mortgage holders whose repayments are linked to central bank rates. In the UK, the Bank of England raised its rate in June by a further 0.5 percentage points to 5%, the highest level since 2008. Households coming to the end of fixed-rate mortgage deals next year now face an average increase in annual payments of £2,900, according to research by the Resolution Foundation.
Worse is yet to come. Financial markets are forecasting interest rates of 6% by the end of the year.
