U.K. Prime Minister Rishi Sunak conceded shortly after the BOE’s rate hike that the government’s mission to halve inflation to 5% by the end of the year had recently become more difficult.
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There is intensifying pressure on Britain’s government to do more to help struggling households, with the country’s shadow finance minister warning of a “mortgage catastrophe” as millions are pushed to the brink of insolvency.
The Bank of England last week hiked interest rates by 50 basis points to 5%, a bigger increase than many had expected. The BOE’s 13th consecutive rate rise takes the base rate to the highest level since 2008.
The surprise move — which is designed to lower inflation — will affect millions of homeowners as the interest rates on many mortgages in the U.K. are directly linked to the central bank’s base rate. Renters, too, are likely to see their payments increase as buy-to-let landlords pass on higher mortgage repayments.
Research by the National Institute of Economic and Social Research, a leading independent think tank, estimated that the BOE’s latest interest rate hike would see 1.2 million U.K. households (4% of households nationwide) run out of savings by the end of the year because of higher mortgage repayments.
That would take the proportion of insolvent households to nearly 30% (roughly 7.8 million), NIESR said last week, with the largest impact set to be incurred in Wales and the northeast of England.
“The rise in interest rates to 5% will push millions of households with mortgages towards the brink of insolvency,” said Max Mosley, an economist at NIESR. “No lender would expect a household to withstand a shock of this magnitude, so the government shouldn’t either.”
Credit scores and grace periods
U.K. Finance Minister Jeremy Hunt on Friday met with major banks and building societies to discuss the deepening mortgage crisis in the country.
Hunt said Friday that three measures had been agreed with the banks,…
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