Homeowners could see their annual mortgage bills rise by £3,000 thanks to ‘Trumpflation’, new analysis from Moneyfacts has found.
Last week the Bank of England said the worst-case scenario for the current conflict in the Middle East could see inflation rise above 6%.
This could mean that the base interest rate rises current level of 3.75% up to 5.25%, with mortgage interest rates rising even further.
Moneyfacts suggests that for a £250,000 mortgage, with a 25-year term, this would mean monthly repayments rising by almost £300, from £1,445.50 before the conflict to £1,727.
That would increase the average annual mortgage bill from £17,346 to £20,724, an increase of £3,380.
Adam French, head of consumer finance at Moneyfacts, said: “The Bank of England’s ‘Trumpflation’ stress scenarios expose how damaging the economic impact of the conflict with Iran could be.
“On the one hand, a relatively benign trajectory would see energy prices fall rapidly, with inflation peaking at around 3.6% before falling back below target next year. On the other hand, a prolonged period of high oil prices could push inflation up to as high as 6.2%, forcing a much more aggressive response from central bank rate setters.
“The Bank’s central case, where inflation is proving more persistent and energy costs are falling more slowly, points to a ‘higher for longer’ environment, with mortgage rates remaining at around current levels of 5.5-6% and annual costs £1,050 to £1,950 above pre-conflict expectations.
“Historical analysis by Moneyfacts’ INTEREST shows that mortgage rates are typically around 1.5 to 1.75 percentage points above the base rate, which would push average borrowing costs above 6.5%. That would translate into an increase of more than £3,000 per year for many borrowers – a devastating blow to affordability.”