Expert issues warning amid fears rates could hit 5.5% by November as hundreds of deals axed already

Bank experts have warned of mortgage chaos for homebuyers amid fears that rates could reach 5.5 per cent by November – as the International Monetary Fund slams Kwasi Kwarteng over his ‘untargeted’ economic plan.  

HSBC and Santander have suspended new mortgage deals amid fears that homeowners could be forced into selling their homes or take up a second job to combat ‘catastrophic’ rises in their monthly repayments.

Nationwide, meanwhile, became the first big name lender to hike its fixed-rate deals yesterday, with the bank’s two-year rate rising to 5.59 per cent – more than double the 2.54 per cent it was offering three months ago.

Lenders are taking drastic steps after analysts warned the base rate could surge to six per cent next spring. Such a move would increase repayments for the average household by up to £800 per month, or £9,600 annually, by the middle of next year. 

In the subsequent scramble, around 365 mortgage deals are understood to have been axed already. as Mr Kwarteng urgently tries to reassure Tory MPs and City chiefs. 

It comes as Huw Pill, the Bank of England’s chief economist, reaffirmed remarks made by Governor Andrew Bailey that it is ready to take action to prevent soaring inflation and warned a ‘significant’ response will be needed.

Speaking at the International Monetary Policy Forum, he said: ‘In the context of the rebalancing of the market environment and in anticipation of looser fiscal policy, it is hard not to conclude that this will require a significant monetary policy response. Let me leave it there.’

Mr Pill said there will be ‘challenging times’ to bring inflation down to the current two per cent target, with recent market conditions having created ‘additional challenges’. 

His comments came as the International Monetary Fund (IMF) slammed Kwasi Kwarteng’s mini-Budget announcement, warning that ‘large and untargeted fiscal packages’ would lead to an increase in inequality across the UK.

The Pound fell dramatically in the wake of the Chancellor’s economic plan, though the Bank of England stopped short of an emergency interest rate hike.

The IMF has urged Mr Kwarteng to instead consider more targeted support for households and businesses instead of large tax cuts and higher spending.

A spokesperson said: ‘We are closely monitoring recent economic developments in the UK and are engaged with the authorities. 

‘Given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy.’

The statement highlighted concern that Mr Kwarteng and the Bank of England are pulling in opposite directions with taxes being cut while interest rates increase. 

The Chancellor responded to the Pound’s plummet by promising to set out plans on medium term debt-cutting on November 23.

But the IMF, in a rare intervention, has said the announcement would ‘present an early opportunity fothe UK Government to consider ways to provide support that is more targeted and re-evaluate the tax measures, especially those that benefit high earners’.

The Pound recovered from record lows on Monday to rise 0.85 per cent against the dollar, but it remains well below the level prior to Mr Kwarteng’s announcement.

HSBC, Santander and Nationwide, along with Lloyds, which also paused some of its products, account for around half of the mortgage market in Britain.

Others to have pulled or amended deals include Clydesdale Bank, Scottish Building Society, Leek United Building Society, Nottingham Building Society, Bank of Ireland and Paragon Bank.

HSBC says it has removed from sale its new business Residential and Buy to Let products for the rest of the day, but added that all products and rates for existing customers remain available.

A spokesperson said: ‘In order to ensure that we stay within our operational capacity, from time to time we need to limit the amount of business we can take each day, which means that once certain daily limits are reached, we will need to limit our range for the rest of that day. 

‘Our broker products will be available again tomorrow, Wednesday 28 September. We continue to review the situation regularly.’  

Banks that were still offering new mortgages this morning, including the likes of Barclays, HSBC and NatWest, were being overwhelmed with demand, The FT reports.   

There are also fears it could take banks as long as a week to reprice mortgage deals – leaving buyers in the dark. 

Mark Mullen, chief executive of retail bank Atom, also told the FT: ‘The markets are very turbulent and being able to price them appropriately is very difficult, so we’re better off not guessing and waiting until things settle down a bit.’

It comes as a family-of-four have been forced to abandon their years-long plan to buy a suitably-sized home as they become the latest victims of surging interest rates. 

Sales executive Verity Blair, 35, said she and her fiancé Alex ‘just can’t afford to buy anymore’ after the Bank of England upped the rate to 2.25 per cent last Thursday – meaning their monthly mortgage repayments would have been £4,000, double the price they were quoted in February of this year. 

The couple, who share twin daughters Penelope and Sofia, are now ‘stuck’ renting in the expensive London market after ‘spending years’ getting themselves in a position to buy a family home, branding the situation ‘scary’. 

Ms Blair told MailOnline:  ‘We are finally in a position to buy a family home outside of London, but the price point we were looking at in February of this year, just six months later would mean our monthly mortgage payments would double – from approximately £2,000 per month to £4,000 per month. 

‘It’s scary, because that is only set to increase. Everyone is talking about the energy price crisis but for most people their mortgage is the biggest bill they pay every month. I am not sure how people will cope when this comes to affect them when current fixed rates run out. 

‘After several years of trying to get in a position where we can buy a family home, we continue to be stuck renting because we cannot afford to buy owing to rate hikes.’

The couple have another flat in London but are unable to sell as it is worth 15 per cent less than when it was purchased seven years ago. 

The climbing mortgage rates could spell disaster for millions of other families who are already struggling with the cost-of-living crisis, while first time buyers face monthly repayments upwards of £1,100, a third more than they were paying in January, according to property portal RightMove. 

Another homeowner, who only gave his name as Matthew H, said his social worker wife is now having to look for extra part time work to cover the rising mortgage costs. 

The couple’s fixed rate at 1.34 per cent with Skipton will expire in January. 

He told MailOnline: ‘An increased rate of 4.5 per cent (currently the best fixed) will no doubt be closer to 6 per cent when I am free to review options. On a mortgage of £340,000 this is going to add £500-plus to our monthly payments.

‘The limited tax cuts afforded to middle class workers will not even scratch the surface. We are in times of deep worry, incompetent government policies and deafly silence from the treasury.’

He added: ‘We can’t sit here like chickens waiting to be plucked, so my wife is looking for a part time additional job to supplement family income.’ 

A mother, who asked to remain anonymous, said she and her partner’s mortgage payments were set to double under the new interest hike.

She said: ‘I’m terrified, we both have good salaries and work full time. We have a daughter.

‘This will push us into poverty.’

One landlord warned the ‘banks will make people homeless and there will be empty houses which won’t sell’ after she and her partner’s mortgage payments have soared by 89 per cent. 

Amanda Osborne, who owns five buy-to-let properties on variable rate mortgages, told MailOnline: ‘Our income hasn’t increased by that much. And obviously we cannot increase our tenants rent by 89 per cent to match these increases and certainly not as rapidly as the interest rates have gone up. It’s simply unaffordable on incomes as they are.

‘More interest rate increases, which seem inevitable given the BofE approach to this mess, is simply not affordable.

‘So we are in a situation where we could sell but no one can afford to buy or we increase tenants rent so that it is unaffordable and they can’t pay?

‘Either way the banks will make people homeless and there will be empty houses which won’t sell.’

Gary Sanders, 53, said the successive increases in mortgage rates so far this year alone have forced him to put his home back on the market. 

He told MailOnline: ‘People are suffering now because of the seven increases since the end of last year. My mortgage has already risen from just over £500 a month to £1200 a month. I know they are going to go higher. I have put my property on the market as I have no choice but to sell.

‘I am a 53 year old man who has worked hard his whole life and I find myself being forced to move back with my parents.’

He added: ‘I am a staunch conservative but what a sorry state this country is in after 12 years of conservative leadership.’

It comes as other homeowners took to social media today to say they are ‘terrified’ of the rising interest rates, as one wrote on Twitter: ‘I think we may end up homeless.’ 

Another said he ‘laid awake at night’ worrying about how he would afford the hike in repayments, branding it ‘anxiety on steroids’, while a single mother pleaded for help, adding: ‘I am so scared.’ 

Others said they were ‘so glad’ that they had been locked into longer fixed deals, meaning they won’t be affected by the rate rises until their terms end. 

‘I’m VERY thankful for my fixed rate mortgage at the moment,’ one wrote, ‘things look pretty dicey for folks whose deals will expire soon.’  

Meanwhile, lenders like Halifax reported ‘extremely busy’ phone lines as homeowners scrambled to remortgage or chat with a mortgage advisor. 

The base rate is currently at 2.25 per cent after the seventh consecutive increase last Thursday – up from a record-low of 0.1 per cent in December.

An increase to as high as 6 per cent next year would be a major blow for around two million homeowners who have variable loans, which move in line with the base rate. 

There are also a further 1.8million borrowers who are currently locked into cheap fixed deals which are due expire over the next year.

They now face paying thousands of pounds more a year when they come to remortgage as lenders frantically hike rates to reflect analysts’ predictions. 

Someone who took out a £200,000 two-year fixed mortgage in March 2021, when the average rate was 1.5 per cent, would see their annual bill leap by £7,000 if rates rise to 6 per cent, according to figures from investment firm AJ Bell.

In another setback for borrowers desperately seeking to lock into an affordable fixed deal, many lenders have responded to interest rate uncertainty by temporarily quitting the market altogether. 

As many as 20 lenders moved to withdraw dozens of loans yesterday, according to mortgage broker L&C.

The pound steadied in early trading in Asian markets on Tuesday as it recovered ground slightly. 

Sterling sat around around 1.08 dollars by 7am, but economists have warned it could still fall to parity with the dollar this year for the first time.

Senior Tory MP Huw Merriman – who backed former chancellor Rishi Sunak for Conservative leader – warned Liz Truss may be losing voters ‘with policies we warned against’, as a new YouGov survey put Labour 17 points ahead, the party’s greatest lead since the firm started polling in 2001.

Mortgage giant Halifax pulled all its products for homebuyers that charge a fee ‘as a result of significant changes in mortgage market pricing’ in recent weeks.

A string of smaller lenders followed in its footsteps.  

Halifax stressed that it had not changed its mortgage rates and that it continued to offer arrangement fee-free options for borrowers. 

Meanwhile, Virgin Money removed its entire range for new customers. Applications for mortgages which have already been submitted will be processed as normal and existing borrowers will still be able to transfer to a different deal. 

Among other lenders, HSBC said it had no plans to change mortgage offers while NatWest said its rates were under ‘continual review in line with market conditions’.

David Hollingworth, of mortgage brokers L&C, said: ‘Volatile funding costs are forcing lenders to re-price their loans. That’s been true all year but that volatility received a turbo-boost as markets react to last week’s events. As a result, more are taking the decision to step back until the dust settles.’ 

He added: ‘Strong demand for fixed deals as borrowers look to batten down the hatches poses another issue as if they get the pricing wrong they could be swamped with applications which they are not able to process efficiently.’

Experts have warned that middle-class homeowners who stretched themselves to buy bigger homes could be among the worst-hit by soaring mortgage costs. 

Mortgage broker Rachel Dixon said: ‘Middle-income families, who don’t always benefit from financial help from the Government, will be the most impacted.

‘These families are already squeezed with the cost of living, so this will just be another added burden for them.’

Mortgage companies are also now factoring in higher household bills when calculating how much homeowners can afford to borrow – which could make it even harder to find a competitive deal. 

And they are becoming increasingly cautious about lending to those individuals they deem riskier, such as first-time buyers with small deposits and the self-employed.

Aneisha Beveridge, head of research at estate agent Hamptons, said: ‘First-time buyers will be amongst the hardest hit by rising rates. Not only is inflation eroding their ability to save, but higher interest rates are also affecting how much they can afford to borrow.’

Sarah Coles, a senior analyst with the Hargreaves Lansdown financial services company, said: ‘Rate prediction is a notoriously difficult business. 

‘But what’s not in any doubt is that rates are on their way up and the more that inflationary forces build, the higher they are likely to go.’

The Pound fell dramatically in the wake of Kwasi Kwarteng’s mini-Budget, but the Bank of England stopped short of an emergency interest rate hike.

Governor Andrew Bailey issued a statement insisting Threadneedle Street ‘will not hesitate to act’, but did not pull the trigger on an increase that markets had anticipated.

The move came after Mr Kwarteng tried to calm market fears by announcing he will lay out fiscal rules on government debt as part of an Autumn Statement on November 23 – alongside a full independent assessment of the state’s books.

But economists fear Sterling could slump to parity with the US dollar this year for the first time. It sat at about 1.08 US dollars on Tuesday.

Shai Weiss, chief executive of Virgin Atlantic, today urged Prime Minister Liz Truss to take a ‘difficult decision’ which will boost the currency’s value.

Speaking at a press conference in central London, he said: ‘The weakness of the pound is hurting, not Virgin Atlantic, it’s hurting the economy and it’s hurting consumers because it’s actually fulfilling or fuelling the inflation vicious cycle that we’re in…

‘The message to Government is pretty clear in my mind. Prime Minister Liz Truss has taken difficult decisions upon entering into the role.

‘Maybe you need to take a more difficult decision to reverse the declining pound and ensure that this country is not left with unsustainable perceived weakness in international markets, which of course then impact interest rates, impact consumers, impact mortgage rates, impact the entire economy.

‘So yes, we are concerned. The fundamentals are strong, but we’re concerned of course like everyone else in this country with the economic environment in which we operate.’

He continued: ‘Sometimes all of us in this room should be humble enough to say: ‘If I did something that is not working, maybe I should reverse course. That is not a bad thing to do.’

It comes as Mr Kwarteng was scheduled to meet with City investors to discuss a package of deregulation as he contends with massive market turmoil sparked by his tax-cutting mini-budget.

The Chancellor met with pension funds, insurers and asset managers to discuss what is being billed as a Big Bang 2.0 – a reference to Margaret Thatcher’s 1986 policies which kicked off a massive change in the City.

Aviva, Legal and General, Royal London, BlackRock, Fidelity, and JP Morgan were all expected to be in the room on Tuesday morning.

On a rollercoaster day Monday, Sterling dropped as low as just $1.0327, briefly returned to just over $1.08, before going quickly back down to $1.06.

Because many key commodities are priced in dollars, a weak pound drives inflation up further. Markets are now pricing in the headline interest rate reaching 6 per cent by next year, heaping more misery on families.

The cost of government borrowing also rose to the highest rate in a decade – causing another headache for Mr Kwarteng as he is using extra debt to fund tax cuts and the energy bills bailout.

However, he is refusing to change course, after insisting only yesterday that there are more tax cuts in the pipeline. 

Mr Bailey said in his separate statement: ‘The Bank is monitoring developments in financial markets very closely in light of the significant repricing of financial assets.

‘In recent weeks, the Government has made a number of important announcements. The Government’s Energy Price Guarantee will reduce the near-term peak in inflation. Last Friday the Government announced its Growth Plan, on which the Chancellor has provided further detail in his statement today.

‘I welcome the Government’s commitment to sustainable economic growth, and to the role of the Office for Budget Responsibility in its assessment of prospects for the economy and public finances.

‘The role of monetary policy is to ensure that demand does not get ahead of supply in a way that leads to more inflation over the medium term. As the MPC has made clear, it will make a full assessment at its next scheduled meeting of the impact on demand and inflation from the Government’s announcements, and the fall in sterling, and act accordingly.

‘The MPC will not hesitate to change interest rates by as much as needed to return inflation to the 2 per cent target sustainably in the medium term, in line with its remit.’

What does the plunging pound mean for mortgages? From customers with fixed-rate deals to those looking to get on the housing ladder, vital Q&A on how feared rise in interest rates will affect homeowners and first time buyers 

Mortgage repayments will likely soar for millions across Britain following the Bank of England’s latest rise in interest rates.

And the situation looks set to worsen after the pound began to plummet this week following Chancellor Kwasi Kwarteng’s mini-Budget announcement on Friday. 

Analysts now fear the base rate could increase to 6 per cent by next spring, while lenders, including Halifax, Virgin Money and Skipton have begun withdrawing mortgage deals as a result. 

The surging costs could spell disaster for families who are already struggling with the cost-of-living crisis. 

Here MailOnline looks at some of the key questions and what interest rate hikes could mean for you:

Why has the pound plummeted this week? 

The pound has plummeted in direct reaction to Chancellor Kwasi Kwarteng’s so-called mini-budget on Friday, which announced the biggest tax cuts in the past 50 years. 

Coupled with the massive energy bill support package, this has fuelled concerns about the scale of government borrowing. 

While there was an initial fall after the chancellor’s announcement, Sterling started to rally slightly. However, Mr Kwarteng’s comments over the weekend saying more tax cuts were coming saw further falls. 

Why has this affected mortgages? 

It is widely expected that if the pound does not rally, the Bank of England will increase the interest rate, meaning debt will become more expensive, hitting many things including mortgages. 

Simon Jones, CEO of financial comparison site investingreviews.co.uk, said: ‘Sterling’s slump is fuelling speculation that the Bank of England may need to take action by hiking interest rates even before rate-setters hold their next scheduled meeting in November. 

‘Remember, more than two million homeowners on variable rate mortgages are already reeling following seven successive increases in the base rate since last December. 

‘Millions more on fixed rate deals will find their repayments have skyrocketed when it comes time for them to re-mortgage.’

How will those with fixed rate mortgages be affected? 

Homeowners on a ‘fixed’ mortgage pay back their loans on an agreed interest rate over a certain period of time. 

It means that any changes the Bank of England makes to the base rate will not affect them until the end of their fixed period. 

However there are 1.8million borrowers who are currently locked into cheap fixed deals which are due expire over the next year.

They now face paying thousands of pounds more a year when they come to remortgage as lenders frantically hike rates to reflect analysts’ predictions. 

For example, someone who took out a £200,000 two-year fixed mortgage in March 2021, when the average rate was 1.5 per cent, would see their annual bill leap by £7,000 if rates rise to 6 per cent, according to figures from investment firm AJ Bell.

In December the average rate for a two-year fix was 2.34 per cent, it is now 4.33 per cent. 

As of last year, around 75 per cent of homeowners had fixed rate mortgages, with almost half of these (45 per cent) locking in for five years.  

How will homeowners with a variable rate mortgage be affected?  

Homeowners with standard variable rate mortgages are at risk as the Bank of England raises rates. 

Mortgage lenders set their own standard variable rates and do not automatically have to pass on base rate movements, but many will pass on Bank of England rises to their SVRs. 

Borrowers with base rate tracker mortgages will automatically see their mortgage rate change in line with Bank of England moves. 

The average Standard Variable Rate in December was 4.4 per cent and that had risen to 5.4 per cent in September, according to Moneyfacts, before last week’s 0.5 percentage point base rate rise.

For a £250,00 mortgage, the cost in December was £1,375 a month, but this has now climbed to £1,521; costing £1,752 more annually.

Those with larger loans for £350,000 will have been charged £1,926 a month in December 2021, but £2,129 for the same deal this month. This comes to an additional £2,426 a year.

How will first time buyers be impacted? 

The average first time buyer will face monthly repayments upwards of £1,100 once banks pass on the latest interest rate rises, property portal RightMove has said. 

That figure is a third more than they were paying in January. 

It means it will be more difficult for people get onto the property ladder, as they will need to prove they can pay back the higher amounts. 

First-time buyers are now spending more than an estimated 40 per cent of their monthly salary on mortgages, the highest proportion since November 2012.  

On average, a first-time buyer will now need to stump up £22,400 (assuming a 10 per cent deposit) if they want to buy a home – representing a 57 per cent increase in a decade, in which wages have risen by just under a third. 

Vadim Toader, CEO & Co-Founder of Proportunity, a London-based Fintech property firm, told MailOnline: ‘It is yet again first-time buyers who are being hit hardest by the UK’s economic woes. The weakening of the pound and increasing interest rates has put lenders in a tough position, where it is not viable for them to offer the mortgage rate deals we were seeing only last week. 

‘This means, to access a decent rate, home buyers will need significantly higher deposits. However, it is unlikely that those saving to buy a house will see the recent interest rate increases passed on to their savings rates, making raising that larger deposit on their own, a longer and more arduous task. Quite the opposite, it will also most likely mean a further increase in rent prices (given landlords mortgages will also go up), which means saving will be that much harder.

‘It couldn’t come at a worse time either, with Help to Buy applications set to end in just over a month, many potential first time buyers will see home ownership as an impossible dream. While the government has recently reduced stamp duty fees, in today’s market conditions, it only really benefits those already on the property ladder, leaving first time buyers high and dry.’ 

What if I have a few months left on a fixed rate?  

You may have to remortgage on what will likely be a higher rate, as banks increase repayment costs to reflect analysts’ predictions.

However homeowners should check what deals they can strike with their current lenders, before comparing them to their competitors. 

Borrowers are advised to speak to their lender as soon as possible if they are worried about making the payments on their mortgages or the impact of switching deals.

Some lenders have extended the length of time you can lock in a new deal ahead of the end of your existing mortgage term, allowing borrowers some certainty about the next rate they will be paying.

Should I get a new deal now? 

Homeowners should check what deal they can get with their lenders, as every mortgage is different and varies. 

If you still have two to three years left on a fixed rate, a mortgage broker can calculate whether getting out early and signing a five or 10-year fixed rate would be worth the cost of a ‘redemption penalty’.

Meanwhile, major lenders like Barclays, First Direct, HSBC and NatWest are offering to guarantee rates for an unprecedented nine months. Customers can start a ‘product transfer’ between four and six months before their current deal is up for renewal. 

Simon Gammon of Knight Frank told the Telegraph that Nationwide was offering the most generous window. 

‘They give you up to three months in which to get the mortgage offer approved and then you have six months to use it,’ he said, effectively guaranteeing the rate for nine months. 

‘Locking in now could save you 0.3 percentage points. That may not sound like much, but for a five-year fixed rate that’s 1.5 percentage points of your mortgage saved,’ Mr Gammon said. 

How much will two-year fixed deals increase by? 

For the shortest term deal, a two-year fix the rise can be felt sharply. In December the average rate for a two-year fix was 2.34 per cent, it is now 4.33 per cent, reports ThisIsMoney.

£150,000 mortgage up £1,800 a year: Those with a £150,000 mortgage with a 25-year term on the average rate would have paid £661 a month for a deal in December at 2.34 per cent, but now that is £811. This is an increase in annual payments of £1,800.

£250,000 mortgage up £3,000 a year: For borrowers with a £250,000 mortgage, £1,102 monthly payments in December last year have climbed to an average of £1,352. This means an additional £3,000 a year.

£350,000 mortgage up £4,200 a year: Buyers or homeowners with a larger £350,000 mortgage will now be paying £1,893 a month on average for a deal compared to £1,543 in December last year. This will cost an additional £4,200 a year.

How much will five-year fixed deals increase by?   

The average five year fixed rate mortgage has increased from 2.64 per cent in December last year to 4.33 per cent this month following the base rate rise, according to data from Moneyfacts.

£150,000 mortgage up £1,644 a year: For a five-year fixed mortgage of £150,000 with a 25-year term in December 2021 borrowers would have paid an average monthly payment of £683. This has now increased to £820, a rise of £137 a month and costing £1,644 more annually.

£250,000 mortgage up £2,724 a year: For the same rate on a £250,000 mortgage the monthly payments have increased from £1,139 in December 2021 to £1,366 in September this year. Annually borrowers would be paying an additional £2,724 on their mortgage.

£350,000 mortgage up £3,804 a year: And for those at the higher end of borrowing with a £350,000 mortgage their monthly payments would have totalled an average of £1,595 in December but taking out the same five-year fixed deal now will cost £1,912 a month. This comes to an additional £3,804 annually.

How much will 10-year fixed deals increase by?   

The average ten year-fixed rate mortgage has increased from 2.97 per cent in December last year to 4.33 per cent this month following the base rate rise.

Longer fixed rate mortgages often cost more because of the certainty they provide the borrower, but the average rate of 4.33 per cent is now the same as a five-year fix.

They are also incredibly niche compared to shorter term deals.

£150,000 mortgage up £1,332 a year: Those taking out a £150,000 mortgage on a ten year fixed rate deal in December will have paid an average of £709 a month. This has now risen to £820, costing borrowers an additional £1,332 in mortgage costs annually.

£250,000 mortgage up £2,208 a year: For those with a £250,000 mortgage, monthly payments in December were £1,182, according to data from Moneyfacts. However, these payments will now have risen to £1,366 costing an additional £2,208 a year.

£350,000 mortgage up £3,096 a year: A £350,000 mortgage will have cost £1,654 a month in December but borrowers taking out a new deal today will be paying nearly £2,000 a month at £1,912. Overall they will pay £3,096 more annually than those who fixed their rate at the end of last year.

How much will standard variable rates increase by?

Borrowers on standard variable rates feel base rate rises keenly as they are often passed over to the borrower, whereas those on fixed term deals aren’t hit until they reach the end of their term.

Standard variable rates were already quite high compared to base rate and fixed rates when the Bank of England started its hikes and so have not risen by as much as base rate – although the latest round of rises are yet to come through.

The average SVR in December was 4.4 per cent and that had risen to 5.4 per cent in September, according to Moneyfacts, before last week’s 0.5 percentage point base rate rise.

£150,000 up £1,056 a year: Those with £150,000 of borrowing on a SVR will have paid £825 a month in December but the same amount this month would be £912 monthly. This is an additional £1,056 a year.

£250,000 mortgage up £1,752 a year: For a £250,00 mortgage the cost in December was £1,375 a month but this has now climbed to £1,521; costing £1,752 more annually.

£350,000 mortgage up £2,426 a year: Those with larger loans for £350,000 will have been charged £1,926 a month in December 2021 but £2,129 for the same deal this month. This comes to an additional £2,426 a year.

Ex-Bank of England chief says it should have ‘gone big and gone fast’ with rate rises after Pound slumped and UK borrowing costs rose above Italy and Greece – as Kwasi Kwarteng is warned he must rebuild trust with markets and panicky banks pull mortgages

By James Tapsfield Political Editor for MailOnline 

A former Bank of England chief laid into its response to the Sterling crisis today as Kwasi Kwarteng faces a battle to rebuild trust with markets over the scale of borrowing for his growth-boosting Budget.

The Pound appears to have steadied somewhat after a rollercoaster ride in which it hit a new record low of just $1.0327. It then clawed back most of the ground but slumped again when the Bank stopped short of the emergency interest rate hike many had anticipated.

Professor Sir Charlie Bean, who served as deputy governor, said his ex-colleagues should have ‘gone big and gone fast’ – pointing out that UK government borrowing was now more expensive than Italy and France since the markets took fright.

He told BBC Radio 4’s Today Programme the Bank was ‘rightly reluctant to have emergency meetings’, but added: ‘I think on this occasion if I had still been at the Bank in my role as deputy governor, I certainly would have been counselling the Governor that I think this is one of the occasions where it might have made sense.’

Asked about the economic turmoil this could cause, he said: ‘The key thing is, if you call it, you have to take significant action.’

‘The lesson is you go big and you go fast,’ he added.

Sir Charlie also warned: ‘It now costs the UK Government more to borrow than Italy or Greece, who we have traditionally thought of as being not quite basket cases, but certainly weaker-performing sovereign entities.’

Even supporters of the government’s approach have admitted that ministers could have done more to lay the ground for the extraordinary Budget package on Friday – when Mr Kwarteng declared he will borrow to slash taxes by £45billion, as well as for freezing energy bills. 

Amid Tory nerves, they urged Mr Kwarteng to tackle the worries of the market ‘head-on’ – with the Chancellor responding by promising to lay out new debt rules at a fiscal event on November 23, which will also feature independent figures from the OBR watchdog. 

However, it is far from the certain that the Bank of England will be able to hold off interest rate increases until its next meeting that month, and many now expect the headline rate to reach an eye-watering 6 per cent by next year. Mortgage providers have already started withdrawing some products amid the chaos, heaping more problems on households struggling with the cost-of-living crisis.

Sterling was sitting at around around $1.08 this morning, but economists have warned it could still fall to parity with the dollar this year for the first time. Gilt yields – the interest rate on the government’s borrowing – have also spiked over recent days. 

Mr Kwarteng will meet asset managers, pension funds and insurers later to discuss his plans for financial services deregulation.

The meeting, expected to take place mid-morning, will be attended by Aviva, BlackRock and JP Morgan among others.

It comes a day after the pound plunged to historic lows in response to the Chancellor’s tax-cutting mini-budget last Friday, forcing Mr Kwarteng and the Bank of England to move to reassure markets. 

Tory restiveness has been fuelled by a new YouGov survey putting Labour 17 points ahead, the party’s greatest lead since the firm started polling in 2001.

Senior MP Huw Merriman – who backed Rishi Sunak for leader – warned Liz Truss may be losing voters ‘with policies we warned against’. 

Mr Kwarteng said he will bring forward an announcement of a ‘medium-term fiscal plan’ to start bringing down debt levels from the New Year to November 23.

It will include further details on the Government’s fiscal rules, including ensuring that debt falls as a share of GDP in the medium term.

At the same time, the OBR watchdog will publish its updated forecasts for the current calendar amid widespread criticism that there was no update when Mr Kwarteng set out his ‘plan for growth’ last week.

At one point, it was thought that the Bank would be forced to step in with an emergency interest rate hike amid fears the pound could drop to parity with the dollar.

However, governor Andrew Bailey said the monetary policy committee, which sets interest rates, would make a full assessment of the impact on inflation and the fall in sterling at its next scheduled meeting in November and then ‘act accordingly’.

Mr Bailey welcomed the Chancellor’s commitment to ‘sustainable economic growth’ as well as the promise to involve the OBR.

‘The MPC will not hesitate to change interest rates by as much as needed to return inflation to the 2% target sustainably in the medium term, in line with its remit,’ he said in a statement.

The move will be seen as an attempt to reassure the markets which were spooked by Mr Kwarteng’s unexpectedly large plans for tax cuts funded by a massive expansion in Government borrowing.

Those concerns were only heightened by comments at the weekend by Mr Kwarteng suggesting that there were further tax cuts on the way.

Some analysts warned that the statements from the Bank and the Treasury were ‘too little, too late’.

Alastair George, chief investment strategist at Edison Group, said: ‘There is no rate increase today and speculators will enjoy the prospect of two months of Bank of England inactivity if the statement is taken at face value.

Shadow chancellor Rachel Reeves warned the Government could not afford to wait to November to set out its plans, and that the public needed reassurance now.

‘It is unprecedented and a damming indictment that the Bank of England has had to step in to reassure markets because of the irresponsible actions of the Government,’ she said.

Speaking at a fringe meeting at Labour’s conference, she hit out at the chancellor over any delay: ‘Is he looking at what is happening on the financial markets? Has he noticed the reaction to his fiscal statement on Friday?

‘It is grossly irresponsible.’

Before the Treasury move, Downing Street had stressed the Government will not be deflected from its tax-cutting agenda by the reaction of the markets.

The Prime Minister’s official spokesman said the UK had the second lowest debt-to-GDP ratio in the G7 group of leading industrialised nations and that the Government’s plans were ‘fiscally responsible’.

‘The growth plan, as you know, includes fundamental supply side reforms to deliver higher and sustainable growth for the long term, and that is our focus,’ the spokesman said.

Don’t Panic! The pound’s in the doldrums, interest rates are on the rise… But fear not, you can weather the economic storm

By Fiona Parker, Tilly Armstrong and Richard Marsden for the Daily Mail 

When the pound sank to an all-time low against the dollar on Monday, you would be forgiven for thinking it was just another storm in the City that has little to do with your day-to-day finances.

But within hours, fears this may cause inflation to soar higher prompted analysts to warn that interest rates could hit a startling 6 per cent next spring for the first time since the turn of the century.

For millions of homeowners, who would face steep bill hikes, this was a terrifying prospect on top of existing cost-of-living concerns. 

It was also a bitter blow for holidaymakers with trips planned to the U.S., who will suddenly find their spending money doesn’t stretch nearly as far.

Yet for now, experts are calling for calm. Myron Jobson, senior personal finance analyst at Interactive Investor, says: ‘There have been a lot of worrying headlines, but the cost-of-living support measures mean that inflation might not go up to the levels previously feared.

‘We’re in the midst of this once-in-a-generation inflationary onslaught — but it’s not going to persist for ever.’

Today, Money Mail explains what the plunging pound means for your personal finances — and simple steps you can take to minimise the fallout…

What has happened?

On Friday, new Chancellor Kwasi Kwarteng announced a £45 billion package of tax cuts, the most generous the country has seen for 50 years.

A few days later, the pound, which was already at a 37-year low against the dollar, plummeted to a record low of $1.0386 during overnight trading in Asia on Monday. 

Currency investors were spooked at the prospect of further state borrowing, while short sellers worsened the situation by betting the pound would fall further.

Sterling has since stabilised — and stood at $1.07 last night.

But with the future still unknown, household budgets could yet feel the impact. And the Bank of England has said publicly that it ‘will not hesitate’ to hike interest rates if necessary.

Mortgages

Millions of homeowners have already seen their mortgage repayments jump following seven consecutive interest rate hikes since December last year.

The Bank of England base rate currently stands at 2.25 per cent — after being lifted by 0.5 percentage points last 

Thursday. But analysts now expect further increases in November — with some warning the base rate could hit 6 per cent next year.

Around two million homeowners with standard variable loans would be hit almost immediately by bill increases. 

Someone with a typical £150,000 loan on a standard variable rate will see their monthly repayments rise by £377 to £1,310 if rates rose to 6 per cent, according to broker L&C. A further 1.8 million borrowers also face higher mortgage costs because their fixed deals are due to expire before 2024.

Uncertainty over what interest rates will do next has also led scores of lenders, including Halifax and Virgin Money, to pull mortgages for new customers.

And Britain’s biggest building society, Nationwide, yesterday revealed that its two-year fixed deal would now start from 5.59 per cent.

This time last year borrowers could get the same deal at less than 1 per cent.

However, Dominik Lipnicki, of broker Your Mortgage Decisions, says: ‘It is important to remember that only a minority of deals have been withdrawn from the market. Borrowers still have hundreds of others to choose from.

‘These fixes will return — even if they do at a higher rate. It is just a temporary move by lenders which want to ensure they know how much a loan will cost them.’

Yet there is no escaping that mortgage costs are rising — and fast. So if you are not planning to move home in the near future, now is the time to seriously consider locking into a fixed deal. Even if your existing deal has not yet ended, remember you can often secure a new rate up to six months in advance.

It may even be worth asking your broker if you should pay a modest exit fee to remortgage early.

Mr Lipnicki adds: ‘Do not just take the first option your current lender offers you, as they are unlikely to take into account any rise in your property value.

‘Speak to an independent adviser and make sure you are thinking beyond monthly repayment costs and the well-known High Street banks. And if you have to pay more per month to fix for longer, that may offer long-term reassurance.’

Savings

On the flip side, higher interest rates could spell good news for savers who have suffered rock-bottom deals for more than a decade.

Savings rates have been edging up slowly since December, but momentum is now growing. Fixed bonds burst through the 4 per cent barrier last week for the first time since 2012. And the best easy-access account now pays 2.1 per cent, up from 0.71 per cent in January.

Also, National Savings and Investments (NS&I) yesterday boosted its prize fund by £79 million for Premium Bond holders.

But High Street banking giants have been far slower to pass on rate rises. Santander’s easy access account still offers just 0.1 per cent.

This means it is imperative savers take the time to shop around for the best deals, with small banks and online accounts typically paying higher rates.

Anna Bowes, of website Savings Champion, suggests fixing some of your money into a good deal now. ‘The important thing to make sure of is that some of your cash is in an easy-access account for when you need it — but not one which is paying paltry rates.’

Even the best savings deals will not shield your cash from inflation, which is currently at a near 40-year high of 9.9 per cent. But by boosting your returns you will at least reduce the eroding effect.

Investors

Some financial firms say their phones have been ringing off the hook this week as investors take stock. 

The impact on your investments depends on what assets you hold and where those companies make their money.

The FTSE 250, which is home to Royal Mail and retailers such as Marks & Spencer and Asos, fell to its lowest level since November 2020 on Monday morning. 

This is because most of the companies on the index make a large proportion of their profits from the UK, so the index is more sensitive to a weaker pound. By contrast, FTSE 100 companies — such as drugs giant GSK — rallied.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, says: ‘Overall, the FTSE 100 tends to benefit from a fragile pound, because most big companies listed in London actually earn most of their money overseas, which will be worth more when it’s converted back into pounds.’

As with any stock market wobble, it’s important to avoid making rash decisions. If you sell in a panic, you may miss out on the market recovery.

Mr Jobson says: ‘People can take solace in the fact that the stock market has overcome big events to produce positive returns for investors. The key is to invest over the long term to give your investments enough time to smooth out the inevitable peaks and troughs of the stock market.’

That said, it may be a good time to look under the bonnet of your portfolio to ensure you are not too heavily invested in one sector.

Pensioners

Workplace pension funds are no longer as reliant on the UK economy, so savers are shielded from some of the uncertainty.

This is because most retirement savers are investing in a wide range of stocks, shares and bonds around the world, thanks to the default funds their employers choose for them.

Becky O’Connor, head of pensions and savings at Interactive Investor, says: ‘Now, you are as likely to find large U.S. technology companies such as Apple and Amazon in a default scheme as big British companies.’

Those with portfolios tilted towards the FTSE 100 could benefit as companies with earnings overseas are boosted by the shaky pound. 

However, anyone taking a retirement income through drawdown should consider how they manage their withdrawals.

Tom Selby, head of retirement policy at AJ Bell, says: ‘Taking out too much too quickly risks draining your pension pot early. 

‘Clearly, if you decide to hike withdrawals to maintain your standard of living as inflation rises, the risk of exhausting your pot will also rise.’

On the upside, rates paid by annuities — which provide an income in retirement for life — have risen by 35 per cent in the last year for new customers.

At today’s rates, a 65-year-old trading in a £100,000 pot could now get a £6,637 annual income — up from £4,900 last year, according to figures from investment firm Hargreaves Lansdown.

And William Burrows, financial adviser at the Retirement Planning Project, predicts that they will jump even higher following the market’s reaction to government tax cuts.

Mr Selby adds: ‘Those who prefer not to keep their money invested in retirement — or chose to secure an income with a portion of their pot — will be able to get a bigger bang for their buck.’

Sir Steve Webb, former pensions minister and partner at LCP, adds that current volatility is unlikely to impact the state pension rise scheduled for April next year. It is predicted to go up by around 10 per cent, taking the payment over £10,000 a year for the first time.

Travel money

Holidaymakers travelling to the U.S. will find their spending money does not stretch as far. In January £1 was worth $1.37. 

But that same pound is now worth just $1.07. So for each £1,000 you exchange, you’d get around $300 less.

Those travelling to Europe have also seen the value of the pound dip from €1.14 to €1.11 in the last week.

However, there are still simple things holidaymakers can do to cut costs.

Simon Harvey, head of foreign exchange analysis at Monex Europe, says: ‘Holidaymakers heading to America in the months ahead may want to buy some of their dollars now, to take some uncertainty out of the trip.’ 

Jack Mitchell, head of travel money at currency firm FairFX, adds: ‘Keep a close eye on currency rates and patterns. Then if rates are looking more favourable, it could be worth considering locking them in on a pre-paid currency card.’

Websites like moneysupermarket.com and compareholidaymoney.com can help you find the best rates. Credit cards which offer fee-free spending, such as the Halifax Clarity, are also a good alternative.

Motorists

A weaker pound means filling up your car could become more expensive as wholesale gas and oil is priced in dollars, and will cost more to import. 

The average tank of petrol has already increased by £7.50 since February, according to the AA. But the cost of oil has also been falling, which means prices are not as high as they could be.

Yesterday, petrol averaged less than 163.5p a litre for the first time since early May, and diesel less than 180.5p for the first time since mid-May. 

‘It’s a “good news, bad news” situation,’ says Luke Bosdet, fuel spokesman for the AA. ‘There is still a lot of price variation, with some fuel stations charging less than 155p a litre, so shopping around or using pump price search tools can bring down road fuel bills further.’

The free smartphone app Petrol Prices compares costs at almost 8,500 stations across the UK, and is updated daily. Or try WhatGas Petrol Prices.

Mr Bosdet adds: ‘The bad news is that those wholesale costs heading to the forecourts should be plummeting. The commodity value of petrol has slumped by more than 10 per cent but the weakness of the pound has helped to prevent that getting through to the pump.’

The 5p fuel duty cut announced by the Treasury in March is also helping. Without this, the current average price of petrol would be 19p a litre higher.

The RAC also says that fuel- efficient driving can help mitigate costs — including gentle acceleration and deceleration and keeping a consistent speed within the speed limit.

Shopping bills

When the pound falls, it can push up prices in the shops as the cost of goods from overseas rises.

The UK imports more than half of its food. And as we move into autumn and winter, Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, warns that supplies of fruit and vegetables increasingly come from abroad, so we can expect some staples to get more expensive.

She says: ‘This is likely to be particularly the case for bananas, which are sold in dollars, and cocoa and coffee.’

Carlsberg chief executive Paul Davies also says the dip was ‘worrying’ for the British beer sector, which imports hops.

Technology, such as mobile phones, may also go up in price in UK shops if they are made abroad. But shoppers should not panic. Buy locally produced food wherever possible.

Meanwhile, UK firms selling goods abroad will also find their products are more competitively priced against global rivals.

‘Some big brands might be able to absorb the heightened cost of importing, and they will benefit from the cancellation of planned rises to corporation tax,’ says Mr Jobson, of Interactive Investor. This means that not all price rises will transfer to customers and supermarket shelves.

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