Households with a typical mortgage are facing a jump in payments equivalent to a 6p rise in income tax, analysis by the Liberal Democrats has found.
The party attempted to calculate the impact of the Bank of England’s interest rate rising from 0.1 per cent a little over 18 months ago to 5 per cent, where it now sits after last week.
For a family who took out a mortgage of £145,000 in 2021, which is in line with broad averages, there would be an increase in payments on that loan of £301.
That is roughly the same as how much the household would pay if the basic rate of income tax rose from 20 per cent to 26 per cent, the Lib Dems said.
The party is calling for a “mortgage protection fund” that would see households struggling with rising payments get government support of up to £300 a month.
Extra spending
Both Downing Street and the Treasury are rejecting calls for extra spending to help those hit by rising interest rates, arguing such moves would just fuel inflation and make the problem worse.
The position is backed up by traditional economic teaching which says loosening fiscal policy puts upwards pressure on prices. However, that does not get around the political challenge.
Some analysts have estimated that the ` will outweigh the impact of last year’s soaring energy costs, which ministers moved to offset with a bills freeze.
The Lib Dems are focussing on the mortgage impact ahead of three by-elections on Jul 20. All three are held by the Conservatives but defeat is possible given the party’s low opinion poll numbers.
The by-elections are for Uxbridge and South Ruislip, formerly held by Boris Johnson, Selby and Ainsty, available after Nigel Adams stepped down, and Somerton and Frome, free following David Warburton’s resignation.
Rishi Sunak made an unannounced visit to Uxbridge on Sunday, campaigning in the sun.
Mr Johnson quit as an MP after being informed a Commons committee had found he misled colleagues over partygate.
Ed Davey, the Liberal Democrat leader, said of his party’s mortgage analysis: “This is a Conservative mortgage tax on millions of families. People are seeing their monthly mortgage payments go through the roof, all because the Conservatives lost control of inflation and the economy.
“While the banks need to step up and help, there isn’t a moment to lose for Rishi Sunak to guarantee help for homeowners facing repossession with a targeted Mortgage Rescue Fund. Every day that goes past means more families are at risk of losing their homes through no fault of their own.”
Mortgage analysis
The Labour Party also revealed its own analysis on mortgages, comparing UK averages with other European countries.
It found UK average annual mortgage payments were higher than Germany (by £780), Netherlands (by £810), Ireland (by £1,130), Belgium (by £1,150) and France (by £2,060).
Pat McFadden, Labour’s shadow chief secretary to the Treasury, said: “These figures lay bare the cost of the Tory mortgage penalty. Yet again the Tory government’s refusal to step up and offer proper support is forcing families into a far worse financial situation than in neighbouring countries.”
Jeremy Hunt, the Chancellor, rebutted criticism of the Government’s approach on inflation and those facing soaring mortgage payments in an article for the Mail on Sunday.
Mr Hunt wrote: “The single best way to reverse this trend and bring down costs – from the weekly shop to mortgage payments – is by squashing inflation. There is no alternative.
“And despite how painful it is for many across Europe right now, one of the most effective methods of bringing inflation down is by increasing interest rates. It is working in other countries, and it will work here too.
“But we must be patient; things will get better.”
