Home owners could face a ‘devastating’ increase of more than £3,000 in their annual mortgage bills thanks to ‘Trumpflation’, new analysis shows.
The study sets out the impact of a worst-case scenario in which oil prices remain sky-high as as result of America’s war on Iran, pushing inflation above 6 per cent.
That scenario was set out last week by the Bank of England and could mean as many as six interest rate hikes, taking the Bank rate from 3.75 per cent to 5.25 per cent.
Analysis by financial data provider Moneyfacts suggests that for a typical £250,000, 25-year home loan, that would translate to an increase in monthly repayments of nearly £300 from £1,445.50 before the war to £1,727.
That would lift the typical annual mortgage bill from £17,346 to £20,724, an increase of £3,380.
Mortgage rates have risen sharply since war broke out in the Middle East
Adam French, head of consumer finance at Moneyfacts, said: ‘The Bank of England’s ‘Trumpflation’ stress scenarios lay bare just how damaging the economic repercussion of the Iran conflict could become.’
While the Bank also outlined a ‘relatively benign’ path in which oil prices ease, it also modelled what might happen if oil tops $120 a barrel and remains at a high level, requiring a ‘much aggressive response’ from rate-setters, Mr French said.
‘For borrowers, the difference between those paths is brutal,’ he added.
Moneyfacts analysis showed that mortgage rates typically sit 1.5 to 1.75 percentage points above Bank rate. So an increase in Bank rate to 5.25 per cent would put average homeowner borrowing costs above 6.5 per cent in a worst-case scenario.
Mr French said: ‘That would translate into an increase of more than £3,000 a year for many borrowers – a devastating hit to affordability.’
Financial markets are currently expecting three interest rate hikes by the end of the year. Before the war they had been anticipating rate cuts.
That is already causing pain for borrowers as lenders withdraw their best deals.
The average rate on two-year fixed deals has climbed from 4.83 per cent before the war to 5.77 per cent. For five-year deals it has climbed from 4.95 per cent to 5.68 per cent.
Last week, the Bank of England said that even based on current market conditions, average monthly payments were already expected to rise by around £80 over the next three years.
It adds to the pain facing consumers who have already seen the cost of motor fuels surge as the oil price rockets.
Household also face steep increases in gas and electricity bills with Britain’s energy price cap expected to rise sharply from July.
And experts also reckon that higher energy costs combined with a fertiliser shortage – also caused by the war – will add to food prices over coming months. ends
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