Millions of mortgage borrowers in the United Kingdom are bracing themselves for huge hikes to their monthly payments as a consequence of the run on the pound.
Markets have been in turmoil since UK finance minister Kwasi Kwarteng announced the biggest tax cuts in 50 years on Friday, together with a big rise in government borrowing, sending the pound falling to a record low against the US dollar. Some analysts now expect the Bank of England to hike the cost of borrowing to 6% next year, up from 2.25%, to shore up the currency and convince markets that it’s committed to getting inflation under control.
That’s £108 more than estimated before the pound’s crash. Many borrowers won’t be able to cope. Samuel Tombs, chief economist at Pantheon Macroeconomics, said in a Tuesday report that a 6% mortgage rate would “lead to a sharp rise in mortgage defaults.
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