Scots receive £1700-a-year average mortgage payments rise bombshell

Worst hit will be the estimated 115,000 Scottish households on standard variable rate (SVR) mortgages or the 85,000 on tracker loans, which fluctuate with the Bank of England rate. They saw typical mortgages rise by over £500-a-year in one fell swoop on Thursday.

Citizens Advice Scotland said the UK government should recognise the further hits to household budget and give most support urgently to those in or at risk of financial distress.

More than 100,000 fixed-rate mortgage deals which it is estimated are scheduled to end during 2022 in Scotland will also be hit. There are also concerns about affordability for first-time buyers trying to get on the housing ladder.

It is the eighth time in a row the Bank of England has raised rates in an attempt to get control over rising prices.

The Bank of England, which warned of further interest rate rises to come, forecast that the UK is now facing a “very challenging” two year recession - which would be the longest on record.

Bank of England government Andrew Bailey said he also expects unemployment rate to almost double by 2025.

Unemployment is predicted to peak around 6.5% by the first few months of 2023. Currently the rate is 3.5%.

But he said the UK economy will emerge from the a predicted recession saying: "We will get out of it, that I can assure you – we will bring inflation down, we will restore growth in this country."

It comes as a YouGov poll found that one in seven Scots are not confident they can afford to feed their families.

While 80% are confident they have the money they need for food, more than a third of the Scots public (37%) say they are less sure they can afford to feed their families than they were this time last year, including 10% who are “much” less confident than they were 12 months ago.

Some 14% say they are not confident they can afford to feed their families, according to the survey of 150 Scots between October 7 and 9.

And while 85% of Scots say they have never had to turn to a foodbank, more than a fifth of the (21%) believe they are now more likely to need one than they were a year ago.

Separate research has also found that the cost of living crisis is hitting Scotland's attempts to tackle climate change - as people prioritise cutting household costs before being environmentally friendly.

New research on consumer habits from consultants Accenture based on a survey has revealed that just four in 100 Scots are likely to prioritise the environment over price.

Half of Scots (50%) said the rising cost of living is making them prioritise price over environmental sustainability when they shop. And the vast majority (59%) agreed that the energy price rises will negatively impact their efforts to be more sustainable.

Interest rates have been rising since last December as inflation has soared to its worst level in four decades.

Inflation, which hit 10.1% in September, is expected to peak at 11% this winter before falling next year.

The rise is the biggest since Black Wednesday in 1992, when interest rates briefly rose from 10% to 15% as the pound collapsed.

The base rate influences things like mortgages, repayments on credit card debt and the interest paid on savings accounts.

According to analysis supported by analysts Moneyfacts, the typical Scots householder with a standard variable rate (SVR) repayment mortgage with £100,000 in debt remaining will have seen their annual costs soar by over £1584 a year since the base rate rises began in December, last year. Annual repayments would now be estimated at over £8100.

In December, SVR interest rates were typically 4.4% and just before the Bank of England rate hike, they were at 5.86%.

It also means that since base rates last went up just over a month ago on September 22, the same typical Scots householder will be having to fork out an extra £552-a-year on mortgages.

Meanwhile, the typical Scots householder with a two year tracker with the same amount of repayment mortgage debt will have seen their annual bills go up by nearly £1800 a year since December. It equates to an increase of £498.72-a-year since September.

Mr Bailey said the reasons for the base rate rise is because inflation was too high and "it's the bank's job to bring it down".

"People should not have to worry about inflation as they go about their daily business," he said. "That is why we have been raising interest rates and did so again today.

"If we do not act forcefully now, it will be worse later on.

"And as the forecast shows there is a tough road ahead."

He said that to ensure that inflation is reduced, the bank rate may have to go up again in the coming months.

The war in Ukraine and the long recovery from the pandemic are also being blamed for rising energy and food costs The value of the pound fell by 1% to $1.12 earlie on Thursday morning.

The Bank of England said they do not expect economic growth to return till the middle of 2024.

The Bank cautioned that this forecast is based on interest rates reaching as high as 5.2%, which the Bank said it does not necessarily expect to happen.

It could be a drawn-out recession, but will be less than half as severe as the 2008 financial crisis, the Bank said.

Chancellor Jeremy Hunt said the Government would focus on tackling the UK's battered public finances to help limit the need for further big rate rises, but warned there were "no easy options".

He said: "The most important thing the British Government can do right now is to restore stability, sort out our public finances, and get debt falling so that interest rate rises are kept as low as possible.

"However, there are no easy options and we will need to take difficult decisions on tax and spending to get there."

From its highest to lowest point, GDP is expected to drop 2.9%, the Bank said, compared with 6.3% during the financial crisis.

Meanwhile unemployment is expected to peak at around 6.5%, from 3.5% today, slightly lower than in 2008.

There was better news in the Bank's inflation projection.

It had previously forecast inflation to peak at 13% in the third quarter of this year, but with the Government's support on household energy bills the forecast was slashed to 10.9%.

The Government has said that the energy support - which currently caps bills at 34p per unit of electricity and 10.3p per unit of gas - will be reviewed next April, instead of running for two years as previously promised.

Assuming that some support will remain in place for the full two years - albeit half as generous from April next year - the Bank forecast that inflation would drop to 5.25% next year before dropping to 1.5% in 2024.

Chancellor Jeremy Hunt acknowledged that the interest rate hike was "very tough for families with mortgages up and down the country and businesses with loans".

He said the "best thing we can do" to reduce interest rates is to bring down government debt and help the Bank bring down inflation.

He added: “We are doing the same things that we are asking families to do, up and down the country."

The British Chambers of Commerce has described the interest rate rise as "further bad news for businesses".

Tim Bannister from property website Rightmove said that "the era of historically low interest rates looks to be over", making it more difficult for those new first-time buyers hoping to get on the housing ladder.

Citizens Advice Scotland financial health spokesman Myles Fitt said: “The hits just keep on coming for people’s finances and household budgets. The announcement will lead to higher mortgage payments for many along with more expensive debt repayments.

“And this is on top of increases in energy bills, petrol costs, food and other living costs while wages stagnate, so it is little wonder CABS are seeing increasing numbers of people who are just unable to cope.

“Mortgages in particular are fast becoming a major issue for CAB clients. Our online advice page on mortgages had seen an increase of nearly 300% from the same period last year. The announcement is going to make this problem a whole lot worse for homeowners across the country.