Finance experts have said that the Bank of England’s new base interest rates could be a “knock-out blow”.
The increase, which was announced today (Thursday), sees the UK’s base rate rise from 4.5 per cent to five per cent.
The base rate hasn’t reached five per cent for 15 years, with the last time it reached this level being in 2008.
The rise means that homeowners on a typical tracker mortgage will be paying approximately £47 more per month, while those on standard variable rate mortgages will see an increase of £30 per month.
The Chancellor and the Bank said that the increase is intended to lower inflation, which yesterday was announced to sit at 8.7 per cent in May this year.
However, some financial experts have said that this approach could “ring alarm bells” and that officials must find ways to support struggling households.
Mohsin Rashid, CEO of money-saving app ZIPZERO, commented: “After a year of being worn down by persistently high inflation, it seems that soaring interest rates could now deliver the knock-out blow to millions of Britons, with mortgage holders facing unaffordable repayments and even potential repossessions.
“Make no mistake: if interest rate hikes continue on this trajectory, defaults are set to soar.
The government must find creative solutions to support struggling households.
Mohsin Rashid, CEO of ZIPZERO
"Throughout the cost-of-living crisis, households have found creative money-saving solutions everywhere, from food shopping, and energy usage, to monetising their own data. But households cannot fight this war on every front.
“The government must now conjure the same ingenuity and find creative solutions to support struggling households who are reading today's news in the fear that their finances are going to be stretched beyond breaking point."
Jatin Ondhia, CEO of real estate investment company Shojin, said: “Rate-setters have delivered yet another blow today in their relentless battle against inflation, which continues to overpower the Bank of England's fiscal policy.
“With forecasts signalling that further hikes could be on their way, the Bank’s ‘do what it takes’ approach - which has the backing of the Chancellor - will ring alarm bells for many.
“Higher borrowing costs will continue to squeeze homeowners and property investors, which in turn will lead to more buy-to-let investors exiting the market and increase rental costs due to a dwindling supply of property.
“The impact of this will be felt far and wide. Renters in high-demand areas like London are already spending 40-50 per cent of their salary on rent. We can only hope that inflation starts to settle soon, but I expect more pain before relief comes.
The past decade of ultra-low interest rates and cheap borrowing is well and truly over.
Jatin Ondhia, CEO of Shojin
“Interestingly, property values remain underpinned by a shortage of supply. In good locations and at the right price point for local markets, cash buyers are still out there, while mortgage buyers are accepting the new norm of higher interest rates and factoring that into their purchasing decisions.
“The past decade of ultra-low interest rates and cheap borrowing is well and truly over and we are seeing a return to more “normal” rates, which all borrowers have to get used to.
“For existing borrowers, the Chancellor has ruled out direct government assistance but is meeting with banks on Friday to find ways to soften the blow.
“Let’s hope they come up with something sensible otherwise we could see an increase in defaults which have so far been muted.”