A FURTHER rise in some mortgage rates on Thursday looks inescapable as inflation remains stubbornly high, experts have said.

The Bank of England is expected to raise the base rate by 0.25 percentage points on Thursday, taking it to 4.75%, although some commentators suggested there could be a more aggressive increase of 0.5 percentage points.

Homeowners on variable-rate mortgages linked to the base rate would see an increase in their payments.

Consumer Prices Index (CPI) inflation remained at 8.7% in May, the same level as in April, according to Office for National Statistics (ONS) figures released on Wednesday.

The Bank of England is tasked with keeping inflation as close to 2% as it can but one housing market expert described the tool it is using as a “blunted instrument”.

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Andrew Montlake, managing director of Coreco mortgage brokers, said: “The latest inflation data is set to upset an awful lot of people, leading to a new set of rates rises that will compound the pain of a cost-of-living crisis on the public.”

He said another rise in the Bank of England base rate “is a nailed-on certainty”, adding: “The Bank have one job to do, and it is painfully clear that the tool they are currently using is a blunted instrument against inflation that is now endemic.

“Rather than keep doing the same thing, they should pause for thought and look at a different approach before they inflict real harm in the economy and on people’s livelihoods.”

Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales (ICAEW), said: “While core inflation is proving troublesome, the painful squeeze on consumer spending from soaring mortgage costs and higher taxes should soon put it on a downward path.

“Although another interest rate rise on Thursday looks inescapable, further tightening will do little to address current inflationary pressures and instead risks deepening the financial pain facing people and businesses.”

Tom Bill, head of UK residential research at Knight Frank, said: “Rising interest rate expectations have pushed up monthly mortgage payments, which will contribute to a slowdown in trading activity and house prices this year.

“That said, the wage growth driving core inflation higher is one of the reasons we don’t expect a steep double-digit fall in house prices this year.”

Alice Haine, personal finance analyst at DIY investment platform Bestinvest, said there is “pressure on the Bank of England to push ahead tomorrow with its 13th rate rise since December 2021 with dramatic repercussions in the mortgage market”.

She added: “As the cost-of-living crisis gets overtaken by a cost-of-borrowing crisis, mortgages have taken the lead as the biggest personal finance concern of the moment.

“The era of cheap money has come to an abrupt and brutal end with borrowers now facing repayment levels that are unaffordable for some.

“Financial markets are expecting the Bank of England to increase the base rate by 25 basis points (bps) on Thursday – believing another hike is the only solution to Britain’s persistent inflation problem.

“However, with inflation so sticky there are likely to be calls for a more aggressive hike of 50 bps – something needed if the Bank of England is serious about bringing inflation closer to its target of 2%.

“It’s a delicate balancing act, however, with any further interest rate rises likely to cause more pain for mortgage holders at a time when their finances have only just scraped through a cost-of-living crisis.

“With the average two-year fixed mortgage rate surpassing 6% this week, the fear is that the situation could deteriorate from here if inflation cannot be brought under control, putting even more pressure on the Bank of England to hike rates.”

Haine said that with the “full force” of mortgage rate rises so far only hitting first-time buyers or those whose fixed-rate deals have expired in the past year or so, “the crunch point will come as more people emerge from two, three and five-year fixed rate deals over the next few months and years.”

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“First-time buyers looking to secure a new mortgage now will find their affordability levels heavily compromised by the combination of high inflation and high interest rates," she added.

“Homeowners on variable mortgages must brace their finances for an instant hit on Thursday if the Bank of England goes ahead with its 13th consecutive interest rate rise.

“Meanwhile, mortgage holders with fixed rate deals maturing soon should seek out a good independent mortgage broker – one that will deliver practical solutions to the many issues that come with higher monthly repayments.”

Joanna Elson, chief executive of the Money Advice Trust, the charity that runs National Debtline and Business Debtline, said: “Food prices and other essential costs remain high – and for those on the lowest incomes who are hit hardest, the choices they are facing are stark.

“We are already hearing from people skipping meals to make ends meet.”