The UK economy has taken a battering recently as the markets showed their disapproval of former PM Liz Truss and then-Chancellor Kwasi Kwarteng's 'mini budget'. Interest rates soared and the cost of new fixed rate mortgages took the same trajectory.
Mortgage hikes of £6,700 a year for an average house purchase have been reported by the Mirror based on new analysis, an eye-watering increase for any household.
On Sunday, October 30, Labour’s Rachel Reeves warned the Tories are “turning people’s dreams into nightmares” as they struggle to hold on to their homes. The cost of a two-year fixed-rate mortgage has rocketed to 6.48%, compared to just 1.6% last autumn.
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According to the publication, at that price, those who borrow about £200,000 will spend £6,698 more a year than they would have done in September last year. Property website Zoopla revealed that demand for new homes from first-time buyers had dropped by a third since the mini-Budget.
The Bank of England is now poised to unveil the biggest hike in interest rates for 33 years as it battles to control inflation with most economists saying that the Monetary Policy Committee (MPC) is likely to raise interest rates by 0.75 percentage points to 3% at the meeting on Thursday.
If the rate increases, it will be the eighth consecutive jump in interest rates by the Bank and will represent the biggest increase since 1989. It is estimated 1.8 million people will have to re-mortgage in 2023, meaning they will be stung by the higher interest rates.
Shadow Chancellor Rachel Reeves said: “The Conservatives crashed the economy and mortgage rates were pushed sky high as a result. Next month’s mortgage costs are eye-wateringly more expensive for so many hardworking families, leaving them worried sick and cutting back. The Tories’ choices are devastating family finances, risking repossessions, and turning people’s dreams into nightmares.
“This is a Conservative crisis made in Downing Street. The latest Prime Minister offers nothing more than a record of economic failure and a habit of making working people pay. Only Labour can provide the strong, stable economy that people need.”
Zoopla's executive director believes that even if mortgage rates ease slightly “rates of 4% to 5% are likely to be the new norm", with a negative impact on house values. Richard Donnell, the property website exec, said: "The most likely outcome for 2023 is that we see a fall in mortgage rates towards 4% with a modest decline in house prices of up to 5%."
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