The economy is facing a significant blow of £15 bn due to surging mortgage rates, which is higher than the impact of a 2p increase in income tax, according to new analysis by the Liberal Democrats.
The findings reveal that by December 2024, annual mortgage repayments are expected to be approximately £15bn higher compared to the start of the cost-of-living crisis in late 2021. This amount surpasses the £13.7bn tax impact resulting from a 2p rise in the basic rate of income tax.
Based on the research conducted by the Resolution Foundation on mortgage repayments, combined with official figures from HM Revenue and Customs (HMRC) on the anticipated effects of tax changes, the analysis highlights the substantial economic consequences of soaring mortgage rates.
For individual households with mortgages, the impact of rising rates is even more pronounced. A typical household with an outstanding mortgage of £145,000 taken out in 2021 is projected to face an annual increase of around £3,600, equivalent to a 6p hike in income tax.
In response to this, the Liberal Democrats are advocating for the establishment of a Mortgage Protection Fund.
This fund would provide targeted support of up to £300 per month to families facing the sharpest rise in mortgage costs and the risk of losing their homes.
The funding for this scheme would be sourced by reversing tax cuts for major banks, following previous successful initiatives.
Liberal Democrat Leader Ed Davey said: “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.”
Davey further called upon Rishi Sunak, the Prime Minister, to promptly ensure assistance for homeowners facing the threat of repossession by implementing a targeted Mortgage Rescue Fund.
He stressed that every passing day without such intervention increases the risk of families losing their homes due to circumstances beyond their control.
The Liberal Democrats and Labour are putting pressure on both banks and the Government to do more to address the escalating mortgage crisis and provide support to those in need, aiming to alleviate the financial burden on homeowners during these challenging times.
Both have claimed over the weekend that Chancellor Jeremy Hunt’s Mortgage Charter falls short of what is required to protect homeowners.
The Chancellor however has said the Government remains focussed on getting to grips with stick inflation and will not be giving Covid-style handouts to mortgage borrowers.
