Truss Plan Pampers The Wealthy, Pushes Borrowers To Perdition

After tumbling to a record low against the dollar, the British pound stabilized Tuesday, rising more than 1% to $1.08.

Photo Insert: The policy laid out by Prime Minister Liz Truss’ administration eliminates caps on bankers’ bonuses and gives workers making more than $1 million a year a roughly $58,000 tax cut.

But the economic policy that sparked the currency’s historic nosedive yesterday hasn’t gone away. And it’s especially bad news for anyone who isn’t wealthy, Allison Morrow reported for CNN Business.

Here’s the deal: Millions of homeowners in the United Kingdom are about to see their monthly mortgage payments increase by hundreds or even thousands of dollars, my colleague Anna Cooban writes.

That’s because the Bank of England is now widely expected to hike interest rates even further to tackle inflation that will be exacerbated by the government’s sweeping tax cuts. Many expect the borrowing rate to hit 6% next year, up from 2.25%.

And unlike in the United States, where mortgages typically hold a fixed rate over 15 or 30 years, British fixed-rate loans have much shorter terms, say, two to five years. That means many as 1.8 million borrowers are now hurtling toward a financial cliff as they prepare to refinance next year, when the mortgage rate may well have doubled.

Samuel Tombs, chief economist at Pantheon Macroeconomics, calculates that a 6% interest rate on the average two-year fixed-rate mortgage in the UK would push monthly payments up a whopping 73%.

In other words, the average homeowner paying roughly $920 a month would suddenly have to pay nearly $1,600.

Meanwhile, the country’s wealthiest households stand to make huge gains. The policy laid out by Prime Minister Liz Truss’ administration eliminates caps on bankers’ bonuses and gives workers making more than $1 million a year a roughly $58,000 tax cut.

The vast majority (nearly two-thirds) of the tax gains go to the wealthiest one-fifth of households, according to one think tank estimate. Naturally, people are already freaking out.

Online searches for “remortgage” more than doubled in the UK on Monday, according to analysis of Google search data by Loan Corp, a mortgage broker.

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