Rishi Sunak has warned a 2.5 percent increase in mortgage interest rates could see homeowners coughing up an extra £1,000 a year.
Cabinet members have been urged to avoid borrowing more to fund public spending by the Chancellor, as it risks triggering further inflation.
Sunak warned a one percentage point increase on a typical mortgage could mean an extra £700 for homeowners not on fixed-rate deals.
The Chancellor is facing increased pressure as the public faces a cost of living crisis, and hinted at further help for families struggling with energy bills in the autumn.
The Chancellor is facing increased scrutiny over the cost of living crisis.
Kirsty O'Connor
In a wide-ranging interview with Mumsnet founder Justine Roberts, in which she put questions from the site’s users to the Chancellor, Mr Sunak acknowledged people’s concerns over the expected energy price cap rise in October.
“We’ll see what happens with the price cap in the autumn, I know people are anxious about this and wondering if they’re going to go up even more,” he said.
“Depending on what happens to bills then, of course, if we need to act and provide support for people we will, I’ve always said that. But it would be silly to do that now."
The latest hike – which saw the cap on energy bills rise to £1,971 at the beginning of April – is just starting to take effect and is expected to push millions of households into fuel poverty.
Asked about measures to support families through the cost-of-living crisis, Mr Sunak said: “I know things are tough right now, of course they are".
He pointed to the raising of the national insurance contribution threshold, 5p cut to fuel duty and a £9 billion package to help people with energy bills.
A 2.5 percent increase in mortgage interest rates could see UK homeowners coughing up extra.
UK PARLIAMENT/JESSICA TAYLOR
However, “there’s a limit to how much we should be borrowing as a country”, he said, adding more borrowing could drive up interest rates.
“Not borrowing huge amounts and just passing that tab onto our kids is the right thing to do".
For Labour, shadow treasury minister Tulip Siddiq said Mr Sunak’s claim that it would be “silly” to act now showed he did not understand the pressures families were under.
The Chancellor has urged cabinet members to avoid borrowing more to fund public spending.
PHIL NOBLE
“How out of touch is this Chancellor?” she said.
“Families are already feeling the cost-of-living crisis, hit by record rises in energy prices, record high petrol prices and staggeringly steep hikes in the cost of food and essentials.
“With the Chancellor heaping them with the biggest tax burden in 70 years on top of that, people are paying more and getting less. It’s time to act".
Quizzed about how someone in his financial position can empathise with people struggling to make ends meet, Mr Sunak, whose wife is the daughter of an Indian billionaire, harked back to his grandparents who emigrated to the UK “with very little”.
“Of course now I’m in a fortunate position but I didn’t start like that, that’s not how my family started".
He said he is “trying to help people manage through some of the challenges we’re seeing with rising prices and I’ll never forget where I came from and the values that I was raised with”.