Banks and building societies have been summoned to a meeting with Chancellor Jeremy Hunt to consider ways to help home buyers hit by rising borrowing costs.

The Bank of England opted for an aggressive approach to tackling inflation, by hiking the base interest rate from 4.5% to 5% as it struggles to bring down inflation which remains stubbornly high at 8.7%.

Financial markets are pricing in at least three more increases before the end of the year, sening borrowing costs to 6.1% by the end of the year, a level of tightening economists warned would risk plunging the economy into a downturn. Shares in banks and housebuilders fell sharply.

Lenders are now under pressure to help those who will see their mortgage payments skyrocket.

Mr Hunt and Prime Minister Rishi Sunak have so far rejected calls to step, but there are growing calls for lenders to be more flexible on mortgage deals, provide more support for those on benefits and for the government to reintroduce of mortgage tax reliefe.

The National Residential Landlords Association (NRLA) warned that interest rates of 5% could force landlords to sell 735,000 rental properties. “This will exacerbate the ongoing supply and demand crisis across the private rented sector,” it said.

Meanwhile, banks have benefitted from rising interest rates. HSBC reported a near doubling of its quarterly profits earlier this year.

Leeds Building Society chief executive Richard Fearon insisted the mortgage market was strong and saidn the current situation is “nothing like the credit crunch” of 2008.

While the Bank opted for a surprise 50 basis points rise in the base rate, there were doubts from two members of the nine-strong monetary policy committee who preferred to maintain it at 4.5%.

The bank said the committee continues to monitor closely the impact of the significant increases in Bank Rate so far.

“As set out in the May Report, the greater share of fixed-rate mortgages means that the full impact of the increase in Bank Rate to date will not be felt for some time,” it said.

The bank noted that business surveys continue to suggest underlying quarterly GDP growth of around 0.25% during the middle of this year.

Indicators of household spending have tended to strengthen “a little while” and the unemployment rate has been flat at 3.8%, in line with the May Report. The vacancies-to-unemployment ratio has fallen further but remains significantly elevated.

Chancellor of the Exchequer Jeremy Hunt said: “High inflation is a destabilising force eating into pay cheques and slowing growth. Core inflation is higher in 14 EU countries and interest rates are rising around the world, but the lesson from other countries is that if you stick to your guns, you bring inflation down.

“Our resolve to do this is watertight because it is the only long-term way to relieve pressure on families with mortgages. If we don’t act now, it will be worse later”.

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Back in March, Daily Business argued that the Bank of England’s strategy wasn’t working