London homeowners on a typical £300,000 tracker mortgage face paying £420 a month more than a year ago in the run-up to Christmas after the Bank of England raises interest rates on Thursday.
The Bank is forecast to increase the cost of borrowing by 0.75 per cent from 2.25 per cent to three per cent — the biggest hike in 33 years — when its monetary policy committee meets to consider its response to soaring inflation.
The move will have an immediate knock-on effect for mortgage holders with tracker or variable rate trackers that move in line with the Bank of England’s base rate.
Calculations by Ray Boulger, technical manager at broker John Charcol, show that the best tracker 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 per cent before last Christmas.
But if, as expected the Bank raises its key rate to three per cent 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 Rightmove figures, the average home in London now costs £664,400 — compared with the national average of £354,564, meaning Londoners suffer most when interest rates go up.
The Standard’s analysis comes as new Prime Minister Rishi Sunak and Chancellor Jeremy Hunt prepare to raise taxes to help fill a £30-40 billion black hole in the public finances.
Treasury insiders said that while the richest would bear the burden of future tax rises, it was inevitable that everybody would feel the pain.
A combination of rising taxes, soaring energy bills, and mortgage and rental costs will add to fears over the biggest squeeze on living standards in decades.
A Treasury source said: “It is going to be rough. The truth is that everybody will need to contribute more in tax if we are to maintain public services. After borrowing hundreds of billions of pounds through Covid-19 and implementing massive energy bills support, we won’t be able to fill the fiscal black hole through spending cuts alone.”
Speaking ahead of a Cabinet meeting this morning, the Immigration Minister Robert Jenrick told the BBC: “I am afraid the economic situation is very difficult and that is going to involve some difficult choices.”
Shadow chancellor Rachel Reeves said: “These new figures show how mortgage costs are going to be eye-wateringly expensive for so many hard-working families in London and across the country, leaving them worried sick and cutting back.”
Liberal Democrat Treasury spokesperson 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 commuter belt to afford this eye-watering rise?”
According to the Standard’s analysis Thursday’s expected rate rise will add around £62.5 million a month, or £750 million a year, to Londoners’ cost of servicing tracker deals.
The majority who are on fixed rates are protected for now but those coming to the end of their deals will be exposed to far higher borrowing costs when they are forced to re-mortgage.
Myron Jobson, senior personal finance analyst at Interactive Investor, said: “The spike in mortgage rates in tandem with rampant inflation have pushed many wannabe buyers to the sidelines. The plight of those making a second rung of the property ladder is also important as they are living in homes that many first-time buyers seek to purchase. The growing affordability pressures could result in a more acute property market slowdown in London and more broadly in the coming months.”
Amid concerns over the resilience of the property market, Nationwide Building Society said house prices fell month on month for the first time in 15 months in October. The 0.9 per cent drop marked the first decline since July 2021 and the biggest fall since June 2020.
