Experts in the mortgage market predict that an unexpected inflation rise could cause mortgage interest rates to soar.

This prediction has left many homeowners seriously concerned over their ability to make monthly repayments on their loans. They also fear that their wages will not be increased to match the rising cost of living.

The UK’s inflation rate is now at 3.7 per cent, its highest level since last April. From an economics perspective, the only way to control this is to push up interest rates which will in turn increase the average monthly mortgage repayment amount.

Although an interest rate increase could be delayed, if the prices of living continue to rise then the average person will have less spare cash. In short, many worry that either scenario would leave mortgage payments more difficult.

Paul Hunt, managing director of Phoebus Software said: “The trouble with inflation is not that it will cause a large rate rise in the near future, as GDP forecasts remain subdued, but that increasing prices for food, clothes and especially transport are leaving less room in household budgets for servicing mortgage debt.  

“On the demand side, the recent strengthening of sterling will be taken by many as an indicator that a rate rise is on the horizon, which could convince some would-be borrowers to keep their powder dry in the coming months.”

It is now up to the Bank of England’s monetary policy committee to choose between leaving the interest rates at 0.5 per cent and risking inflation becoming embedded or increasing interest rates and risking a double-dip recession.