A new analysis conducted by the Liberal Democrats reveals that households with a typical mortgage will experience a significant increase in payments, equivalent to a 6p rise in income tax. The analysis takes into account the Bank of England’s interest rate, which has risen from 0.1% over the past 18 months to its current rate of 5%.
For a family with a mortgage of £145,000, the payment increase would amount to £301. This increase is comparable to what the household would pay if the basic rate of income tax increased from 20% to 26%, according to the Lib Dems. To address this issue, the party is proposing the establishment of a “mortgage protection fund” that would provide government support of up to £300 per month for households struggling with rising payments.
Extra spending
Despite calls for additional spending to assist those affected by rising interest rates, both Downing Street and the Treasury are rejecting such measures. They argue that such actions would exacerbate inflation and worsen the problem. This position aligns with traditional economic teaching, which suggests that loosening fiscal policy puts upward pressure on prices. However, this does not negate the political challenge at hand.
Some analysts predict that the impact of interest rate increases will outweigh the effects of last year’s surging energy costs, which the government attempted to offset with a freeze on bills. The Lib Dems are emphasizing the impact of mortgage payments ahead of three upcoming by-elections. Although these seats are currently held by the Conservatives, defeat is possible given the party’s low polling numbers.
The by-elections will take place in Uxbridge and South Ruislip, Selby and Ainsty, and Somerton and Frome. Chancellor Rishi Sunak recently made an unannounced visit to Uxbridge to campaign in the sun. Former Prime Minister Boris Johnson resigned as an MP following his involvement in a controversy regarding a partygate scandal.
Liberal Democrat leader Ed Davey criticized the Conservative government’s handling of inflation and the economy, referring to the increased mortgage payments as a “Conservative mortgage tax.” He called for immediate action from Chancellor Rishi Sunak to guarantee assistance for homeowners facing repossession through a targeted Mortgage Rescue Fund.
Mortgage analysis
The Labour Party has also conducted its own analysis on mortgages, comparing UK averages with other European countries. The findings show that UK average annual mortgage payments surpass those of Germany (£780), the Netherlands (£810), Ireland (£1,130), Belgium (£1,150), and France (£2,060).
Labour’s shadow chief secretary to the Treasury, Pat McFadden, criticized the Tory government’s lack of support, stating that it puts families in a worse financial situation compared to neighboring countries. Chancellor Jeremy Hunt defended the government’s approach on inflation and soaring mortgage payments in an article for the Mail on Sunday. He emphasized the importance of reducing inflation by increasing interest rates, acknowledging that the process may take time.
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