Watch: Chancellor calls on the public to ‘balance their accounts at home’
Homeowners face the biggest single shock on their mortgage bills in over three decades.
It comes after the Bank of England said it would hike interest rates by 0.75% to 3% on Thursday - the biggest single increase since 1989.
At 3%, the base rate - wich is what the Bank charges lenders when they borrow money, and which in turn influences the interest rate those lenders charge for a mortgage - is also at its highest level since December 2008.
The Bank has also warned further rises might be required to bring down runaway inflation.
For now, though, the rise will particularly impact mortgage holders who are on deals tied to the base rate, or on a fixed rate agreement and due to remortgage in the next year.
It means more than four million people will likely see sharp increases in their mortgage bills in the next year, as demonstrated by this chart...
Given this ongoing economic disruption, the difference between today's mortgage rates and the ones being offered two years ago is stark.
According to Moneyfacts, the average interest rate of a two-year fixed mortgage on Tuesday was 6.57%, compared to 2.43% in November 2020. A five-year fixed rate was 6.32% compared to 2.7% in November 2020.
That difference, when framed in terms of monthly payments, can be seen in the following chart...
However, in better news for homeowners - and also tenants who are vulnerable to rent increases if their landlords are paying mortgages - the Bank's governor, Andrew Bailey, has said he now expects mortgage rates to drop from the current extreme levels.
This is because the higher base rate is expected to soothe the financial markets and lead to a fall in swap rates, which is what mortgages are priced on.
His remarks could be a glimmer of hope for the 1.8 million households whose fixed deals are scheduled to end next year, even though rates are unlikely to increase to the previously low levels.
But for those who had or have to take out a new mortgage in the current period of market volatility, Bailey acknowledged the situation is “very unfortunate”.