Chancellor Jeremy Hunt has acknowledged the difficulties facing homeowners after the Bank of England put up its base rate from 2.25% to 3%, the highest for 14 years, and warned of a prolonged recession. He warned families will face “very tough” times as mortgage costs soar, but insisted he was clearing up the economic mess left by the Liz Truss mini-Budget fiasco.
Fixed-rate mortgage holders are cushioned from the immediate impact of the base rate rise, but there are concerns that people will have to re-mortgage onto a much higher rate when they eventually come off their current deal. Some households could see their interest payments increase by around £3,000 a year if they take out a loan that is 3.5 percentage points higher, the Bank said on Thursday.
However, Bank of England governor Andrew Bailey said that he now expects mortgage rates to drop from their currently very high levels, but they will still remain elevated. This is because the higher base rate will soothe the financial markets and lead to a fall in swap rates, which is what mortgages are priced on.
