HARD-pressed households are facing more mortgage misery after the Bank of England raised interest rates to five per cent – the highest since the 2008 financial crisis.
The Sun called governor Andrew Bailey ‘The Plank of England’ for failing to react quickly enough to the crisis.
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Here Mike Ridley reveals how Sun readers took the rates rise news.
And Business Editor Ashley Armstrong answers vital questions on what could happen now.
Health worker Paul Scates, Bournemouth
THE 43-year-old is selling up and moving back in with his parents.
Paul bought the two-bed penthouse for £300,000 in 2014 and for the past five years has been on a 3.25 per cent fixed-rate mortgage, paying £650 a month.
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But his repayments were set to soar with a remortgage rate of ten per cent.
He says: “I just can’t afford such a high rate so I’ve had to put my home up for sale. Saying I live with my parents at the age of 43 feels embarrassing.
“The Bank of England’s plan clearly isn’t working, but they don’t care whose lives they ruin. They should be ashamed.”
Security worker Muhammad Afzal, Ilford, East London
HE fears his family’s mortgage will go up by £1,000 a month when they renegotiate in January.
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Muhammad and wife Aneela, both 41, have £290,000 left on their home and pay £1,185 per month at a rate of 3.75 per cent.
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But now the base rate has hit five per cent and may go up again the couple who have a daughter, Izzah, 11, expect to have to find £2,219 a month in the New Year.
Muhammad says: “We are worried now. The most we could stretch to would be another £500 to £600.
“If it went up by an extra grand, we would have to look for a second job, do an interest-only mortgage or sell up. We’ve already cut back. There’s nothing left to cut back at this point.”
Beauty therapist Radhika Khandke, St Ives, Cornwall
RADHIKA is feeling the pinch at home and at work.
The monthly rent for her one-bedroom flat went up to £650 and after yesterday’s interest-rate rise she expects it to go up again.
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Her business rent has also been hiked by 15 per cent and the costs of the buying the beauty products has risen by a fifth.
Radhika, 43, was forced to raise her prices last year by ten per cent, but is worried another increase will drive customers away. She says: “I don’t want to put people off.
“Andrew Bailey has got a lot to answer for.”
- Additional reporting Laura Purkess
Pensioners Charlie and Jan Hughes, Lincoln
The couple are “living from hand-to-mouth” on £998 a month.
They reside in a park home where the ground rent is £144 a month.
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Experienced secretary Jan, 65, cannot find a job and they do not qualify for benefits.
She says: “Inflation is out of control. We’re living from hand to mouth.
“We have no savings. I’ve tried to get work but no one wants me because of my age, and I can’t get the state pension until April when I’m 66.”
Retired railway worker Charlie says: “Our country’s finances have been in a mess for a year, and no one seems to have any idea how to get those out of it. What if inflation hasn’t even peaked?”
Q&A: NO HELP & IT MAY GET WORSE
Q: COULD rates go higher still? How bad could it get?
A: Yes, the Bank of England said that it could raise rates further if “persistent inflation” doesn’t start to come down.
And with inflation taking longer to unwind than expected, largely because of a strong jobs market and higher wages, analysts reckon the bank will have to keep on putting rates up. Traders are betting that they could peak at six per cent, the highest since June 2000.
Q: ARE we heading for a recession?
A: One of Chancellor Jeremy Hunt’s advisers, Karen Ward of bankers JP Morgan, argued this week that the bank had to “create a recession” to stop inflation.
She claimed it was only when people and companies became worried about their prospects that they stop increasing prices or demanding wage rises.
But wishing for a recession is politically unpopular and the Government has said it is focused on getting the economy growing.
A recession knocks investor confidence so could also cause government borrowing costs to rise, leaving less in the Treasury’s coffers for investment and tax cuts before an election.
Q: WHY is the Bank of England being blamed for high rates?
A: It has been widely criticised for being too slow to spot creeping inflation after Covid.
Economists and politicians argue that if the bank had acted sooner it would not have to be playing catch-up so dramatically now and inflation would not be so punishing for people facing rocket- ing mortgage costs and food bills.
As shoppers saw grocery bills get more expensive every time they visited the supermarket, the bank thought the price rises would only be temporary. That has not been the case – and now millions of mortgage holders face brutal costs increases.
The Institute for Fiscal Studies said rising interest rates could see 1.4million mortgage holders lose more than 20 per cent of disposable income. An estimated 690,000 of those hit hardest will be under 40.
Q: ARE lenders going to offer help to people?
A: Bosses of Britain’s high street banks will meet the Chancellor on Friday to discuss the mortgage crisis. The banks – already accused of not passing higher interest rates on to savers and boosting their own coffers in the process – so want to avoid fresh accusations of profiteering from struggling homeowners.
During the pandemic they introduced mortgage payment holidays and campaigners such as Martin Lewis have called for these to be reintroduced.
Lenders are more likely to extend the terms of customers’ mortgages, which means lower payments over a longer period. So-called “forbearance measures” have already been introduced in an effort to reduce a rise in repossessions.
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Q: IS the Government considering any bailouts?
A: No. Prime Minister Rishi Sunak has ruled out government support, despite cushioning households during Covid and the energy crisis. He argues that another big support package now would only make inflation worse.
This is because mortgage handouts would dampen the impact of higher interest rates for homeowners and therefore not alter peoples’ spending habits.
A mortgage bailout could also be seen as interfering with the bank’s independence.
Labour’s Shadow Chancellor Rachel Reeves has also ruled out subsidies for mortgage holders but said borrowers should be able to switch to interest-only rates or increase mortgage lengths without credit scores being affected.
Q: WHEN might rates start to fall again?
A: Financial markets are now predicting interest rates to peak this December at six per cent and start falling, but only very modestly, in March 2024.
Traders think rates will still be as high as 5.5 per cent next September.
This could change if there are signs that inflation has dropped dramatically, economic growth shrinks by more than expected or unemployment spikes.
Q: MY fixed-rate deal is about to expire – what should I do?
A: Experts say you should act quickly and speak to a mortgage broker or check the rates currently available from your bank.
It depends on your situation and how long you plan to stay in your property.
Moving to another fixed rate will generally have a lower level of interest than a tracker mortgage, but you may face a steep early repayment charge if you want to sell your home within two years.
Shifting to a standard variable rate should be avoided.
Those rates are already touching 7.5 per cent, which would mean a massive jump in monthly repayments.
Q: I RENT – how do interest rates affect me?
A: Higher interest rates will affect the cost of other borrowing, such as overdrafts, loans and credit cards, but could also end up meaning higher rent costs.
Tenants are already facing record-high rents and rising mortgage costs are pricing more people out of buying a property, meaning more people are having to rent, pushing up demand.
The homes shortage is keeping rents from falling, eating away at savings and people’s chances of securing a deposit.
Rents are also rising because buy-to-let landlords are pulling out of the market in droves because interest rates and regulation make it less profitable to rent out property.
