Mortgage repayments will be £100 a month more expensive by the end of the week if the Bank of England intervenes to save the tumbling pound.
Markets expect the Bank to take emergency action and raise the Bank Rate by a further 0.75 percentage points by Friday, a week after it increased the central interest rate from 1.75pc to 2.25pc. It comes after the pound fell to an all-time low overnight in the wake of tax cuts announced by Chancellor Kwasi Kwarteng last week.
That in turn would put mortgage rates beyond 6pc in the first half of 2023.
An emergency rate rise by the Bank of England would speed up a mortgage crisis for hundreds of thousands of buyers and homeowners searching for a new deal.
If the Bank Rate rises to 3pc this week, a buyer purchasing an average £295,750 property with a 25pc deposit on a two-year deal would see their monthly mortgage payments jump from £1,188 to £1,283 – an overnight rise of almost £100 a month, according to analysis by estate agency Hamptons.
The same mortgage would have cost £889 a month in November last year, before the first increase to the Bank Rate.
Meanwhile, monthly mortgage payments for a first-time buyer purchasing an average £243,700 home with a 10pc deposit on a two-year fix are expected to rise from £1,209 to £1,304 by the end of the week.
Last week markets had priced in the Bank Rate peaking at 4.5pc next year, but that was based on the next decision happening in November and before the pound slumped. Now investors expect interest rates to surpass 6pc in the first half of next year.
It will coincide with more than a million homeowners coming to the end of their fixed-rate deal next year. Around 300,000 borrowers will reach the end of their fixed rate in each quarter of 2023, peaking at 375,000 between April and June, according to analyst Built Place.
The vast majority of these borrowers will have locked into a rate below 2.5pc and will be hit with a significant mortgage shock when their deal expires.
Swap rates, which are the underlying rates that lenders use to price loans alongside the central Bank Rate, have surged. Five-year swaps have risen from 4pc last week to more than 5pc today – compared with 3pc in August and 0.7pc a year ago, according to analysis by broker SPF Private Clients.
Mark Harris, of the mortgage broker, said borrowers were in for a “bumpy ride”. He added: “Borrowers should prepare for a significant increase in their mortgage costs. If they are benefiting from a very low rate then perhaps start to set some money aside for the undoubted increase that is coming.”