Over 200,000 Scots homeowners hit with new mortgage bombshell

The increase from 3.5%, will put more pressure on mortgage payers and businesses struggling to pay off their loans.

This is the 10th meeting in a row at which the Bank’s Monetary Policy Committee has voted to raise UK borrowing costs.

Homeowners on Standard Variable Rates (SVRs) or tracker mortgages, which fluctuate with the Bank of England rate, will be hit the hardest by the latest increase.

Industry estimates suggest around 200,000 Scots are on variable rate loans.

Repayments had already increased by hundreds of pounds per year since the base rate rises began in December, 2021.

More than 100,000 fixed-rate mortgage deals which it is estimated are scheduled to end during 2022 in Scotland will also be hit.

UK chancellor Jeremy Hunt says the government supports the Bank of England’s decision to lift UK interest rates by half a percentage point to 4% today.

Hunt said the rate rise will help bring inflation down.

He said: "Inflation is a stealth tax that is the biggest threat to living standards in a generation, so we support the Bank’s action today so we succeed in halving inflation this year.

“We will play our part by making sure government decisions are in lockstep with the Bank’s approach, including by resisting the urge right now to fund additional spending or tax cuts through borrowing, which will only add fuel to the inflation fire and prolong the pain for everyone.”

UK inflation was 10.5% in December, over five times above the Bank of England's target of 2%.

The Bank said that the UK is still headed for a recession, but stressed that the economic downturn could be shallower and shorter than previously expected.

It expects the economy to “fall slightly” in 2023 as energy costs and other prices continue to ease.

But it forecast that the inflation rate will continue to slow this year and firms are likely to hold off on making redundancies.

The Bank's Monetary Policy Committee voted seven to two in favour of the 10th consecutive rate rise, but then indicated that future policy decisions would depend on the economic data ahead.

"UK domestic inflationary pressures have been firmer than expected," the MPC said

Explaining further, it writes in its report: "Headline CPI inflation has begun to edge back and is likely to fall sharply over the rest of the year as a result of past movements in energy and other goods prices."

But, it adds, "the labour market remains tight and domestic price and wage pressures have been stronger than expected, suggesting risks of greater persistence in underlying inflation".

“If there were to be evidence of more persistent [inflationary] pressures, then further tightening in monetary policy would be required,” it said.

Bank of England governor Andrew Bailey said it is “too soon” to declare victory over inflation.

He thinks inflation will fall this year and more rapidly in the second part of the year but added that "developments over the coming quarter will be crucial".

And he added that last year's large energy price increases are starting to drop, notably "wholesale gas spot prices have fallen by around 50% since last November."

But he said it is not certain energy prices will fall - and even if they do, inflation being so high could still have an effect on other parts of life such as wages.

He said the full effect on interest rate rises has yet to come through.

"It is too soon to declare victory just yet", he said.

"We need to be absolutely sure we're really turning the corner on inflation."

The Bank will continue to monitor the data very carefully, Bailey added.

Liberal Democrat Leader Sir Ed Davey said the latest rise in interest rates by the Bank of England is a “hammer blow” for families struggling with the cost of living crisis .

He said: “This is a hammer blow to hardworking families across the country. Today’s decision to hike mortgage rates has added fuel to the fire of this cost-of-living crisis.

“The blame lies squarely with the Conservative Government whose botched budget last year sent mortgage rates spiralling.

“Their complete failure to get inflation down has led to homeowners paying the price.”

Downing Street acknowledged the interest rate hike could be “difficult” for mortgage holders.

The Prime Minister’s official spokesman said: “Inflation is the biggest threat to living standards in a generation, so we support the Bank’s action today to help us succeed in halving inflation this year.

“We will continue to take the difficult decisions needed to do everything we can to reduce inflation, including not funding additional spending or tax cuts through borrowing, which only serve to fuel inflation further and prolong the pain for everyone.”

The spokesman added: “This is a difficult time for mortgage holders in the UK. As the Chancellor has said, sound money and a stable economy are the best way to deliver lower mortgage rates and keep down the costs of mortgage payments.

“That’s why we are taking the necessary and responsible action to halve inflation, reduce our debt and get the economy growing.”

The Federation of Small Businesses (FSB) national chairman Martin McTague said: “Consumer spending is stuck in the doldrums with retail spending over the festive period anaemic at best.

“Increased mortgage and loan costs will further dampen people’s willingness and ability to open their purses, spelling further pain in the short term for consumer-facing industries, which will inevitably feed through to other sectors as the situation persists.

“The Budget in six weeks’ time must be grasped as an opportunity for the Government to promote a growth agenda. Small businesses are the economic grassroots and – if left to wither – the whole economy will suffer.”

David Bharier, head of research at the British Chambers of Commerce (BCC), said the Bank’s “hardline approach” to inflation could have “serious side-effects”.

“Those impacted most by today’s decision will be mortgage holders and businesses reliant on debt to keep afloat after three years of economic shocks,” he said.

“With the Bank expecting inflation to slow to around 4% by the end of the year, further rate rises could now simply add to the risk of a deeper recession, outweighing the benefits.”