Michael Gove has told families struggling to pay their mortgages that money to help them “cannot be magicked out of thin air”.
The Cabinet minister today admitted Tory ministers had “exacerbated” the issue of soaring borrowing rates with Liz Truss’s mini-Budget.
Mr Gove said ministers are “looking at everything that we can do in order to help homeowners through this difficult period”.
But he warned that any sort of large-scale intervention such as creating a furlough-style scheme for homeowners would be extremely costly.
“If government is spending money, then it can't be magicked out of thin air,” he told the BBC’s Laura Kuenssberg.
“It will all either come from people's income through taxation - and we've got to keep taxation low - or borrowing.”
The squeeze on mortgage holders is set to tighten as the Bank of England gets ready to hike interest rates for the 13th time in a row, experts have said.
Some analysts are expecting UK interest rates to rise by another 0.25 percentage points on Thursday and say there could be more hikes on the horizon.
It would take the rate to 4.75%, helping to drive the cost of borrowing and hitting more than a million mortgage holders whose fixed-rate deals are due to expire soon.
A 0.5 percentage point increase is "not out of the question", according to economists at Oxford Economics.
The average mortgage holder is looking at a £200 increase in their monthly repayments if their rate goes up by three percentage points.
Levelling Up Secretary Mr Gove said he was "concerned" by events in the mortgage market.
He told Sky News's Sophy Ridge on Sunday show: "It is a very difficult situation for hundreds of thousands of people and that is why it's vitally important that the Government does everything that it can in order to help people with the cost of living."
He added: "When it comes to mortgages, it's the independent Bank of England's interest rate decisions that will govern that, but we are looking at everything that we can do in order to help homeowners through this difficult period.
"Interest rates are rising in the eurozone and they are rising in America and elsewhere, and that's because of the long-term shocks that came both as a result of Covid and the war in Ukraine. Now, I'm not saying that that absolves this Government, or any government, of a responsibility for dealing with it.
"One thing that is clear, though, is that the decisions that were taken by Liz Truss and Kwasi Kwarteng exacerbated the situation. Since Jeremy Hunt has been Chancellor and Rishi (Sunak) has been Prime Minister then steps have been taken that have given markets greater confidence.”
A former deputy governor of the Bank of England said there is an argument that it should "wait a bit" for previous interest rate increases to filter through before raising them again.
Sir Howard Davis, who is currently chairman of the NatWest bank group, told BBC Radio 4's Broadcasting House: “It's arguable that the interest rate rises that we've already seen have not yet fed fully through into the impact on consumer spending.”
