Ondon homeowners on a typical £300,000 follow-on mortgage had to pay £420 a month more than a year ago in the run up to Christmas after the Bank of England raised interest rates on Thursday .
The Bank is expected to raise the cost of borrowing by 0.75% from 2.25% to 3% — the biggest increase in 33 years — when its monetary policy committee meets to consider its response to the surge in the ‘inflation.
The move will have an immediate ripple effect for mortgage holders with a variable rate tracker or trackers that move with the Bank of England base rate.
Calculations by Ray Boulger, technical director at broker John Charcol, show that the best follow-on deal on a £300,000 repayment mortgage would have cost £1,359 when the Bank’s base rate was at its lowest of 0, 1% before last Christmas.
But if, as expected, the Bank raises its key rate to 3% this week – in what would be its eighth consecutive hike – the same loan will cost £1,779, or £420 more, from the next repayment date.
According to figures from Rightmove, the average house in London now costs £664,400, compared to a national average of £354,564, meaning Londoners suffer the most when interest rates rise.
The Standard’s analysis comes as new Prime Minister Rishi Sunak and Chancellor Jeremy Hunt prepare to raise taxes to help plug a £30-40billion black hole in public finances.
Treasury insiders said while the wealthiest will bear the brunt of future tax hikes, it’s inevitable that everyone will feel the pain.
A combination of rising taxes, skyrocketing energy bills and mortgage and rental costs will add to fears about the biggest squeeze on living standards in decades.
A Treasury source said: ‘It’s going to be tough. The truth is that everyone will have to contribute more in taxes if we want to maintain public services. After borrowing hundreds of billions of pounds via Covid-19 and implementing massive support for energy bills, we will not be able to close the fiscal black hole through spending cuts alone.
Speaking ahead of a Cabinet meeting this morning, Immigration Minister Robert Jenrick told the BBC: ‘I fear the economic situation is very difficult and that means some tough choices.
Shadow Chancellor Rachel Reeves said: ‘These new figures show how dearly mortgage costs are going to cost so many hard-working families in London and across the country, leaving them sick worried and shrinking.
Liberal Democrat Treasury spokeswoman Sarah Olney added: “A mortgage nightmare awaits homeowners this week, which frankly could have been avoided. How on earth does the government expect a struggling family in the capital or suburban belt to afford this breathtaking climb? »
According to the Standard’s analysis, the rate hike scheduled for Thursday will add around £62.5m a month, or £750m a year, to the cost of trailing contracts for Londoners.
The majority of those with fixed rates are protected for the time being, but those reaching the end of their transactions will face much higher borrowing costs when they are forced to remortgage.
Myron Jobson, Senior Personal Finance Analyst at Interactive Investor, said: “Soaring mortgage rates in tandem with runaway inflation have pushed many budding buyers on the sidelines. The fate of those who make a second rung on the home ownership ladder is also important because they live in homes that many first-time buyers are looking to buy. Growing affordability pressures could lead to a sharper downturn in the property market in London and more broadly in the months ahead.
Amid concerns about the resilience of the housing market, the Nationwide Building Society said house prices fell month-on-month for the first time in 15 months in October. The 0.9% drop marked the first drop since July 2021 and the biggest drop since June 2020.