BRITS face a mortgage time bomb with interest rates heading towards six per cent next year.
In a scramble triggered by last week’s mini Budget, 365 mortgage deals have been pulled.
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Chancellor Kwasi Kwarteng was last night trying to reassure Tory MPs and City chiefs.
Homeowners face having to find thousands of pounds extra a year to pay the mortgage — and will struggle to find a new deal.
Experts are predicting interest rates could rise to six per cent next year after a sharp fall in the value of the Pound.
They warn that the Bank of England could announce another 1.5 per cent rise by November.
At the same time, the number of mortgage deals available is being slashed by lenders.
Around 365 products have been pulled from the market in the past two days by high street banks including HSBC, Santander, Skipton, Halifax and Virgin Money.
The chaos follows last week’s mini Budget, in which Chancellor Kwasi Kwarteng cut taxes by £45billion, funded by government borrowing.
That spooked the markets and led to a chain reaction which now looks certain to sharply force up interest rates. The Bank of England raised interest rates by 0.50 per cent last week to 2.25 per cent.
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But there is now an expectation governor Andrew Bailey will be forced to go much further.
Markets believe there is the potential of interest rates rising to six per cent by March.
Yesterday, Bank of England chief economist Huw Pill said: “We have all seen recent significant fiscal news. That has had significant market consequences as well as significant implications.”
Economists viewed Mr Pill’s comments as a clear sign the Bank will push a big increase in the interest rate when it meets on November 3.
While more than three quarters of home mortgages are on fixed tariffs, around 1.8million of those loans are due to expire within the next year, according to UK Finance.
For a homeowner with a £200,000 two-year fixed mortgage, their £800 monthly interest payment will rocket to £1,103 if interest rates rise to 3.25 per cent — as expected by the end of this year — meaning an extra £3,156 a year, according to AJ Bell.
Nation’s financial resilience under threat
But if interest rates rise to six per cent, as the Bank of England has requested high street banks to model, this will jump to £1,408 a month — an extra £7,296 a year.
Sir Charlie Bean, the Bank of England’s former deputy governor, said it was time to take big action fast or the UK could turn into a “basket case” like Greece or Italy.
He said the Bank may need to raise interest rates by as much as one per cent before its November meeting amid a “material risk” of another slide lower for the Pound.
Sterling slumped to a historic $1.03 low following the Chancellor’s massive tax cuts and was trading at $1.06 yesterday. It has fallen 21 per cent so far this year.
Samuel Tombs, at Pantheon Economics, said the interest rate rise would be “simply unaffordable” for many. Analysts said the pressure on household income from an expected hike in interest rates was simply the Government “swapping one cost of living crisis for another”.
Myron Jobson, of Interactive Investor, said: “Two weeks ago rising energy bills dominated the headlines, now it’s concern over mortgage repayments. The long-term financial resilience of the nation is under threat.”
Karen Noye, a mortgage expert at Quilter, said: “Rates of six per cent could prove disastrous for the property market as people won’t be able to afford mortgage payments if they have overstretched themselves.
“This could cause a wave of properties to come to market just when demand is drying up.”
Analysts at Credit Suisse have forecast house prices could “easily fall by ten to 15 per cent” if spiralling interest rates hurt demand.
LYDIA IN £12K GAMBLE: EARLY REPAYMENT
MUM Lydia Joseph was so worried about how she would afford her mortgage with spiralling interest rates she paid a £12,400 early repayment charge to switch it.
Lydia, 34, below with family, of Faversham, Kent, had a three-year fixed mortgage at 2.08 per cent due to end in April next year.
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She worked out it would be better to switch to a deal at 2.7 per cent with the same lender even paying a charge.
Lydia would have to pay £2,632 a month if rates hit 6 per cent. She pays £1,853 on her deal, £779 less.
THREAT TO FOOD SHOP: FIXED RATE
SECRETARY Andreea Gherasium and husband Sebastian worry about what will happen when their four-year fixed rate deal at four per cent ends next year.
If rates hit six per cent Andreea, 30, and lorry driver Sebastian, 26, of Rutland, will see their £336 monthly payments soar when they lock into a new deal.
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The couple and kids Marcus, ten, and Lucas, nine, above, are struggling to get by.
They have even cancelled swimming lessons. Andreea said: “I’m really concerned that when our fixed deal ends it will mean cutting back on our food shop.”
FEARS WE WON’T OWN: INTEREST ONLY
HARD-working mum Nyree Clark fears her interest-only mortgage could jump from £253 a month to £380 if rates hit six per cent.
The 40-year-old, of Chesterfield, Derbys, works all the hours she can as a health adviser for the NHS and runs a pet courier business with husband Michael, 51.
Because the mortgage is interest-only, they have aimed to pay extra each month to ensure they own the property at the end to hand on to son Cody, 13.
But she said: “I don’t know if I’ll be able to if rates increase by this much. People are going to lose their homes.”
