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Rishi Sunak warns of rise in mortgage payments

29 April 2022367 views0

Chancellor Rishi Sunak told cabinet ministers that homeowners could see their mortgage payments rise by £1,000 a year in the coming months.

While this is factually correct, publications ran headlines that were deliberately misleading, implying this was a political decision and the Conservative party are responsible.

The Bank of England is the UK’s central bank, and the Monetary Policy Committee of the BoE decide whether interest rates should be changed roughly every six weeks.

The UK Government has set a target of keeping inflation at 2%. It is currently at 7%. If the BoE misses the inflation target they must tell the government why. The most recent letter to the Chancellor in March 2022 outlined why inflation has moved so far beyond the 2% target, which included:

economic effects of Covid-19 leading to “a volatile evolution of [prices]”
Consumer price index (CPI) inflation
Rising energy costs following the impact of Russia’s invasion of Ukraine on oil
Global supply chain bottle necks owing to high demand and supply shortages

To combat the impact of rising inflation, the BoE raised interest rates to 0.75%, the general intention being while it costs more to borrow and spend, you could earn more on the money you save.

Pre-pandemic interest rates had been at record lows, pushing up house prices – it cost less to borrow and take out a mortgage, so people could bid higher on properties while maintaining low repayments. Now, as interest rates go up, so would repayments.

Government debt, borrowing and spending also have an effect on the economy, which in turn impacts interest rates. What has been left out of the coverage of these stories – or kept to the final sentence of the piece – is this is what the Chancellor does not want to do.

Media outlets ran headlines that caused panic and anger, further fuelling political bias for or against the government when they are not responsible for setting interest rates, when what homeowners really need is insight into how best to approach the inevitable as the economy recovers and stabilises after 3 years of damage – and whether or not they would even be affected.

A crucial piece of information is either missing or hidden from the headlines and stories: in general, your mortgage will only go up if you have a variable rate mortgage – a tracker mortgage that follows the inflation base rate, or a loan on a mortgage lender’s standard variable rate.

Further information about the BoE/MPC’s decisions around inflation, as well as advice on how to prepare for rising rates, can be found here.

Rishi Sunak ‘warns mortgage payments set to rise by £1,000 a year’

The Independent

Mr Sunak rejected calls to provide more help for families struggling with soaring bills by arguing that borrowing risked stoking inflation and interest rates according to The Times
In an interview with Mumsnet, the chancellor said it would be “silly” to provide more help with energy bills right now: Sunak explained, “If governments, at a time like this, borrow lots and lots more money, and we’re already borrowing quite a lot, our own interest bill is ticking up, what that does is risks interest rates having to go up even more,” he said in the full interview.

Homeowners warned their mortgages are set to rise by £1,000

Metro

Mr Sunak has rejected calls to offer more support to under-pressure families
Within the same article:
He has warned borrowing more to fund public spending could fuel rising inflation even further

Rishi Sunak warns homeowners face paying £1K more a year on mortgages in coming months

Mirror

Those who are on lender revert rates or Standard Variable Rates (SVRs) and tracker rate mortgages are most likely to see the rate passed on in full
A fixed rate mortgage could provide a safe haven against the rise as it locks you in a deal for a set term – but you’ll have to act fast as the advertised rates on these products tend to go up as soon as the base rate does