“A giveaway that spooks the gilt market would take far more out of homeowners’ pockets than it puts back in.”
In other words, tax cuts or spending commitments that investors believe are unaffordable could push up government borrowing costs. That could feed through to swap rates and eventually make fixed mortgages more expensive.
Borrower faces paying £4,000 more a year
Mr Lane provided a worked example showing the financial shock facing people coming off older, cheaper deals.
The borrower has a £300,000 repayment mortgage at 75 per cent loan-to-value, spread over 25 years. They are leaving a five-year fixed rate of 3.29 per cent and currently pay £1,468 a month.
Moving to the best available two-year fix at 5.28 per cent would increase the monthly payment to £1,806. That is an annual rise of around £4,053.
A five-year fix at 5.17 per cent would cost approximately £1,790 a month, adding around £3,855 to the annual bill.
Doing nothing would be substantially more expensive. Moving automatically onto a standard variable rate of 6.94 per cent would push the payment to approximately £2,109 a month.