OVER 200,000 Scot homeowners will see their mortgage payments soar by over £2000 a year in the space two years after the Bank of England hiked the base rate of interest to 4%.
Bank of England governor Andrew Bailey has warned that interest rate rises may have to continue for longer if pay keeps rising sharply in the face of surging inflation.
The Governor of the Bank of England said policymakers "will have to respond" if wage data and inflation continue to "overshoot" to avoid the risk of such a situation becoming permanent.
His comments came after the Bank's Monetary Policy Committee raised the base rate from 3.5% to 4% - the highest in 14 years.
It is the 10th meeting in a row at which the Bank’s Monetary Policy Committee has voted to raise UK borrowing costs.
While higher interest rates will be welcomed by savers, it will have a big hit on those with mortgages, credit card debt and bank loans.
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 £360-a-year in one fell swoop on Thursday.
Thousands of fixed-rate mortgage deals which it is estimated are scheduled to end during the next six months 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 said that inflation is "likely to have peaked".
Mr Bailey has been under fire as UK inflation jumped to 11.1% in October on the back of energy and food price rises before easing to 10.5% at the end of last year - more than five times the 2% target and close to a 40-year high as UK households continue to be squeezed by the cost of living crisis. The Bank of England expects inflation to fall gradually to just over 8% in June while a Decision Making Panel members survey it to be at 6.4% next January.
He said that the economy is turning a corner but added "it's early days and the risks are very large".
He said: "If those risks emerge and if we continue to get overshoots as we've seen, particularly in the wage settlement data and services inflation, then we will have to respond to that, because that would be evidence that these risks are crystallising."
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 £2,100 a year since the base rate rises began in December, 2021. Annual repayments would now be estimated at over £8700.
In December, 2021, SVR interest rates were typically 4.4% and just before the Bank of England rate hike, they were at 6.84%.
The typical Scots householder with a two year tracker with the same amount of repayment mortgage debt will see their annual bills go up by just under £2,100 a year in the two years. It equates to an estimated increase of £343-a-year since before the latest base rise.
Citizens Advice Scotland financial health spokesman Myles Fitt said the interest rate rise was a "kick in the teeth for people who have gone through a difficult winter dealing with higher costs and flat incomes".
He said: “So many households in Scotland are struggling to make ends meet. With energy bills, petrol costs and prices in the shops higher than ever while wages stagnate. Citizens Advice bureaus are seeing increasing numbers of people who are just unable to cope and in many cases are using credit to cover essentials costs – that just got more expensive."
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 Monetary Policy Committee voted by a majority of 7–2 to increase Bank Rate by 0.5 percentage points.
Two members, Swati Dhingra and Silvana Tenreyro, preferred to maintain Bank Rate at 3.5% - they had both voted for no change in December as well.
The Bank of England said inflation 'likely to have peaked', according to its Monetary Policy summary.
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