London homeowners will be hardest hit by this week’s rise in interest rates, according to new research released on Friday.
The Bank of England’s decision to increase the base rate to 1.25 per cent - the fifth consecutive rise and its highest level since 2009 - has added to the pressure on millions of households which are already facing by soaring energy, food and fuel prices.
Analysis by the Liberal Democrats concludes that because of London’s higher house prices, homeowners in the capital will incur the biggest increase in their monthly mortgage payments.
The Lib Dems estimate that the average homeowner in the capital on a variable rate mortgage will pay an extra £679 this year as a result of the increase on Thursday.
The party has based its estimate on an average mortgage in London of £471,299 but the average mortgage for first time buyers in London could be much lower at around £350,00.
But even allowing for that lower level of borrowing, the interest rate rise will still mean an extra £504 this year, their analysis concludes.
The calculations are based on an estimate that every 0.25 percentage point rise in interest rates equates to an extra £12/pcm per £100,000 mortgage value.
The Lib Dems say the figures add weight to their calls for an Emergency Mortgage Support Fund to provide a safety net for those who can’t keep up with mortgage repayments.
The party’s leader Sir Ed Davey said: "This is a hammer blow for the squeezed-middle. The forgotten middle have borne the brunt of unfair tax hikes and need saving from a crushing mortgage rise.
“It is first-time buyers in London and the South I fear for most, who through no fault of their own have mammoth mortgage bills to pay off due to high house prices. Every mortgage hike sends a shiver down the spine of struggling families but the Government is nowhere to be found.
“An emergency mortgage support fund and tax cut could save homeowners on the brink.”
Meanwhile Bank of England chief economist Huw Pill, a member of the Monetary Policy Committee which sets interest rates, signalled on Friday that the Bank could have to act more aggressively to tame inflation if it becomes more “entrenched”.
His comments come after Chancellor Rishi Sunak wrote to the Bank’s Governor Andrew Bailey on Thursday to say thay he expected the Bank “to take the action necessary to get inflation back on target and ensure inflation expectations remain firmly anchored”.
Economists expect interest rates to keep rising until inflation - now predicted to rise to 11 per cent this year - is tamed.
Mr Pill told Bloomberg TV: “If we do see greater evidence that the current high level of inflation is becoming embedded in pricing behaviour by firms in wage setting behaviour by firms and workers, then that will be the trigger for this more aggressive action.”
