Homeowners with a £300,000 mortgage are facing a potential increase of £13,200 in their annual payments by the end of this year, compared to 18 months ago. The recent analysis reveals that lenders have been quick to raise their rates and withdraw their mortgage offers in anticipation of the Bank of England potentially raising interest rates to 6 percent. HSBC, one of the largest banks in the UK, has already pulled its mortgage offers from the market twice in a week due to overwhelming demand. Other financial institutions, like Coventry, have followed suit by suspending their residential and buy-to-let deals and introducing new, pricier products. Chancellor Jeremy Hunt has emphasized the necessity of raising interest rates to combat rising inflation, stating that it is the biggest challenge faced by the UK. The Bank of England is widely expected to increase the base rate for the 13th time in just 18 months from its current level of 4.5 percent. Positive growth in wages and the economy has further fueled the pressure for an interest rate hike. Financial markets predict a 33 percent chance of rates hitting 6 percent by the end of the year. While this move may add to the burden of families with mortgages and businesses with loans, Hunt highlights that reducing inflation is essential for long-term growth and prosperity. In response to criticism of underestimating inflation, the Bank of England has finally agreed to review its forecasts. Former Treasury permanent secretary, Lord Macpherson, believes that these interest rate increases may inevitably lead to a recession next year, as the bank has been slow to respond to changes in rates. The cost of UK borrowing has already reached levels unseen since the financial crisis, and experts warn that this will have a domino effect on the mortgage market. So far, the interest rate increases have added £9,564 per year, or £797 per month, for homeowners with a standard variable rate mortgage of £300,000. However, more increases are on the horizon as rates continue to rise. If the base rate reaches 6 percent by the end of the year, homeowners could see their mortgage payments increase by £13,231 per year or £1,103 per month compared to 18 months ago. Recent figures also reveal that the British economy is recovering, with households spending despite financial constraints. The Office for National Statistics reports a 0.2 percent increase in output in April after a 0.3 percent decline in March.
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