Why millions of households ‘could face higher mortgage payments after Budget’

A view of the facade of the Bank of England in central London on November 5, 2020. - The Bank of England on November 5, 2020 unveiled an extra £150 billion in cash stimulus and forecast a deeper coronavirus-induced recession for the UK as England begins a second lockdown. (Photo by Ben STANSALL / AFP) (Photo by BEN STANSALL/AFP via Getty Images)
A view of the facade of the Bank of England in central London on November 5, 2020. - The Bank of England on November 5, 2020 unveiled an extra £150 billion in cash stimulus and forecast a deeper coronavirus-induced recession for the UK as England begins a second lockdown. (Photo by Ben STANSALL / AFP) (Photo by BEN STANSALL/AFP via Getty Images)

Homeowners could start to see their mortgage bills rise soon if the Bank of England raises interest rates following the Autumn Budget, as many economists are predicting.

An increase in the base rate prompted by fears of rising inflation would hit those with variable mortgages or outstanding debt hard, particularly taken alongside rising energy bills.

Will interest rates go up?

Economists are warning that the Bank of England could increase interest rates as early as next week, with an expected rise from 0.1% to .25% over concerns about rising inflation following Rishi Sunak’s budget.

An increase in interest rates would see the cost of borrowing go up, with those on variable mortgages and outstanding debt the worst affected.

A further interest rate increase is also expected to come earlier next year than originally forecast, due to the budget.

Some mortgage lenders have already increased rates following the budget, including HSBC, Barclays and NatWest, while TSB has withdrawn some of its mortgage deals

The Bank of England’s monetary policy committee will meet next Thursday, with many forecasters predicting an increase to be recommended at that meeting

'Actually awful'

It comes as many have warned that high inflation and tax rises will see living standards fall for many middle-income earners, as they will likely outpace wage growth for most people.

Richard Hughes, chairman of the OBR, said: “It is the case that we have a recovery in wages over the forecast period but we also have above-target inflation over the next few years and also you’ve got taxes going up and a net reduction in universal credit.”

“The lion’s share is the fact that inflation is eating away at nominal wages over the next few years. There’s a smaller impact from the rise in national insurance contributions,” Hughes said.

Paul Johnson, director of the Institute of Fiscal Studies, said: “This is actually awful. Yet more years of real incomes barely growing. High inflation, rising taxes, poor growth keeping living standards virtually stagnant for another half a decade.

“Large swathes of the population face a squeeze on living standards over the coming year. Rises in national insurance contributions and (through a freeze to the personal allowance) income tax in April will come on top of rising inflation, taking a significant swipe at people’s spending power.”