Rising interest rates trigger ‘cliffside’ debt warning for homeowners

The UK’s leading debt charity has warned that rising interest rates could present a “cliff edge” for homeowners with mortgages. (PENNSYLVANIA)

A leading charity has warned of a potential “cliff edge” for Britons making mortgage repayments amid rising interest rates.

On Thursday, the Bank of England confirmed that the UK base interest rate would drop to 1.25% – a 13-year high – in a bid to limit rising interest rates.

Read more: FTSE 100: Tesco sales fall amid ‘unprecedented cost of living rise’

It came in response to forecasts that inflation will top 11% by the end of the year when the energy price cap hits £2,800 in the middle worsening cost of living crisis.

Inflation has already reached its highest level in 40 years, hitting 10% in the 12 months to April 2022 and driving up the cost of essentials like food and fuel.

Debt charity StepChange told Yahoo News UK that those with mortgages could see a big impact on their repayments.

interest rate

Interest rates are at their highest in 13 years. (Bank of England)

May 2022 correct inflation

Inflation is at its highest for 40 years. (ONS)

“For people who have existing debt solutions, who have mortgages or who have just recently seen debt advice and who have mortgages, it is quite likely that they will see some of the impact of this being produce a bit more straight than on other types of debt – especially if they’ve just finished a fixed rate deal,” said the charity’s Sue Anderson.

“So that’s the most obvious place where we’re going to see cliff edges – where people are having a much higher mortgage payment than they were paying before.”

StepChange is also concerned that these increases in mortgage repayments will “realistically” push more people into debt.

“Among our customers at the moment, only about 15% are mortgage holders – so I guess one of the things we’ll be looking at, over the next few months, is whether that proportion will increase,” he said. said Anderson.

Read more: Interest rates: Rising UK inflation will trigger multiple hikes, BoE economist warns

Debt is a growing problem in the UK. inflation causes the biggest problems.

“It’s the inflation that’s creating the heavy hit,” Anderson said.

“If you have a low income that’s not going up, but your costs are going up, that’s what really impacts the cohort of people we’re most worried about – people who have very little financial resilience and very little income.”

Thursday, the consumer magazine Who? Silverwarned that homeowners on variable mortgages will be among those who will feel further pressure.

EMBARGOED TO 0001 WEDNESDAY JUNE 1 File photo dated 13/01/03 of customers in a Morrison supermarket in Winsford, Cheshire.  Store prices rose at the fastest pace in more than a decade in May due to rapidly accelerating food inflation, new figures show.  Date of issue: Wednesday, June 1, 2022.

Experts have warned that food inflation could reach 15% this summer. (PENNSYLVANIA)

“This increase in the base rate will impact mortgage holders and savers, at a time when money is tight for millions of households,” Richardson said.

“Mortgage borrowers on fixed deals won’t see any change in repayments, but those on a follow-up or variable rate mortgage could see their rates go up.”

Rishi Sunak insisted that “strong growth will return”, despite warnings from the OECD that the UK faces the second worst economic growth in the G20 – behind Russia.

Read more: Cost of living crisis ‘will get worse before it gets better’ after interest rate hike

“First the Bank of England which has a good track record of keeping inflation at 2%,” Sunak said. “Second, I will ensure that we manage our borrowing and debt responsibly so that we don’t make things worse and drive people’s mortgage rates higher than they otherwise would be.

“Finally, we are doing things like moving people from welfare to work or increasing energy supply, which will alleviate some of the supply chain issues that we are seeing, so taken together people should have confidence and return to strong growth.”

Watch: Rishi Sunak: Inflation will subside and ‘strong growth will return’

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