Homeowners could see their mortgage payments shoot up by £510 a year if interest rates surge to their highest levels since the financial crisis, according to gloomy new analysis.
The Office for Budget Responsibility said rising inflation may prompt the Bank of England to hike interest rates from the current 0.1% to 0.75% by the end of 2023.
The forecasters claim this could see the amount homeowners pay in mortgage interest soar by 13% in 2023, reaching a peak of 14.8% in the second quarter of that year.
Homeowners with a tracker and variable rate mortgage - where your rates go up and down - see their mortgage bills rise in line with interest rates. But fixed deals are also rising - as early as next week.
Analysis by the Liberal Democrats shows that an average mortgage borrower on a standard variable rate of 3.26% will see their monthly mortgage payments go up by £42 a month, or £510 over a year, if interest rates continue to climb.
For a typical average mortgage borrower on a fixed rate mortgage of 2%, payments would go up by £25 a month or £300 a year.
Mortgage rates have already climbed since Wednesday's Budget, with banks including NatWest, HSBC and Barclays all putting up rates just hours after the Chancellor's speech.
Barclays is hiking rates by up to 0.35 percentage points on a range of fixed-rate mortgages and Halifax announced rises of up to 0.20 percentage points on a handful of products from next Monday.
NatWest has increased rates on a range of its fixed deals by 0.1 per cent, while HSBC said its rates would go up.
TSB said they would be increasing their rates by 0.35 percentage points today.
It previously had the lowest two year fixed deal on the market at 0.84 per cent, but this has now increased to 1.09 per cent, an extra £192 a year. The lender also withdrew all its three-year fixed offers.
Virgin increased its rates on Wednesday evening by up to 0.25 percentage points, including some of its green home deals.
Personal finance and market experts are currently predicting the so-called base rate could rise from 0.1% to 0.25% next month.
See our guide on how to remortgage here.
The Bank of England will next meet on November 4 and if it does decide to increase the base rate, it will be announced that date.
Last week, consumer price inflation fell back slightly to 3.1% but the new Bank of England chief economist Huw Pill warned how it could hit 5% by early next year.
Are you worried about soaring mortgage interest rates? Let us know: mirror.money.saving@mirror.co.uk
Leader of the Liberal Democrats Ed Davey MP said: “This Conservative Chancellor has created the perfect storm. This is now the worst time in a generation to be a homeowner."
“British homeowners face the toxic cocktail of interest rate rises, house prices surges, and council tax hikes just around the corner. This ghastly forecast should send a shiver down the Chancellor’s spine.
“The way he brushed off the cost of living crisis in the budget was careless and completely out of touch with the country. If he can’t get a grip on this cost of living crisis, how on earth is he going to cope with a mortgage crisis?
“People who work hard and play by the rules deserve a fair deal. Enough is enough, it is time to scrap the tax hikes, solve this cost of living crisis and defuse this ticking mortgage timebomb.”
Martijn van der Heijden, chief financial officer at mortgage broker Habito, said: "Lenders have already been seen to be increasing their rates - NatWest upped theirs overnight, while TSB are increasing theirs - albeit by small amounts so far (0.10 per cent increases).
"Borrowers who are on a variable rate will feel the impact of inflation the greatest, even if the rate increases by as little as 0.25 per cent, this could see their repayments shoot up by hundreds of pounds a year, so it's worth looking at all the options.
"For savvy homeowners, now is the time to fix, as for those on longterm fixes, rising inflation effectively eats into the value of their mortgage debt and offers protection from any further rises down the line."
