Borrowers are close to the eye of a perfect storm with debt markets at the moment.

For a long time now the mortgage squeeze has increased the cost of borrowing money. These costs have already been passed onto the borrower.

Now the threat of an inflation explosion has forced central banks to increase official rate, dealing yet another blow to mortgagees. Earlier today the European Central Bank (ECB) had increased the official rate from four per cent to 4.25 per cent, after an inflation figure revealed this week of four per cent basically forced the central bank’s hand.

But it is not just the current inflation rate the concerns the European bank as higher costs are expected to keep upward pressure on the inflation rate for some time yet.

Finally inflation has been given the respect it deserves, and while many argue that rising interest rates will not lower inflation, it is a fundamental principle that taking money out of the economy will cool demand, even for oil, and this in turn will help to rein in inflation.

There is no denying it that this is a perfect storm for homeowners as more and more struggle with their budget. If this trend continues for the rest of the year expect the number of defaults on mortgages to rise substantially.

If there is any clear sky it is for the savers. With the higher cost of money, people with savings are able to find rewards with high interest term deposits and savings accounts.