Homeowners will pay hundreds MORE each year as mortgage rates soar after Rachel Reeves’s £40bn tax bomb Budget
MORTGAGE rates will soar thanks to Rachel Reeves’s £40bn tax bomb Budget – costing homeowners hundreds of pounds more a year.
The Office for Budget Responsibility said the cost of mortgages would rise faster under Labour’s plans than with the last Conservative government.
It came after the Chancellor unleashed a record-high £41.5bn spread of tax rises in her maiden Budget this afternoon.
In a nearly 200-page analysis published alongside the Budget, the impartial audit body said mortgage rates would rise from 3.7 per cent to a peak of 4.5 per cent by 2027.
They are then likely to remain at that level until the end of the forecast period in 2030.
At the last spring Budget, put together by then-Chancellor Jeremy Hunt, mortgage rates were set to hit a peak of 4.1 per cent before levelling out.
It means homeowners will face hundreds of pounds more in mortgage bills – with inflation and interest rates remaining higher for longer.
The OBR’s nearly 200-page analysis says: “Average interest rates on the stock of mortgages are expected to rise from around 3.7 per cent in 2024 to a peak of 4.5 per cent in 2027, then remain around that level until the end of the forecast.”
Part of the rise is triggered by five-year mortgages taken out in 2020, while rates were significantly lower, reaching as low as 2.3 per cent.
Thousands will expire next year and will have to be refinanced at higher rates.
Banks set their mortgage rates based on their own forecasts for future interest rates.
According to analysis by lenders L&C, if rates go up by a quarter of a per cent, a first-time buyer borrowing £200,000 would be stung for £360 a year more.
The OBR’s analysis went on: “The high proportion of fixed-rate mortgages – around 85 per cent – means increases in Bank Rate feed through slowly to the stock of mortgages.
“Compared to our March forecast, mortgage rates are around 0.3 percentage points higher on average over the forecast, driven by our higher forecast for Bank Rate.”
The “trick and treat” Halloween package included:
- A freeze to fuel duty for a 15th consecutive year in a win for The Sun’s Keep It Down campaign
- A penny off a pint by cutting draught beer duty, but raising booze taxes on other drinks
- A gloomy forecast of sluggish growth in a blow to Labour’s flagship mission
- A stamp duty rise for second-home buyers of two percentage points
- A pay rise for millions as the minimum wage was increased by £1,400 a year
- A hike to a packet of cigarettes as smoking duties were raised
- A new tax on vapes ahead of the looming ban on disposable e-cigs
- Higher taxes on air passenger duty for private jets that hits the wealthy
- A benefits crackdown with Ms Reeves telling jobless Brits to “get back to work”
- An increase to the state pension of £473 next year through the triple lock
- An inheritance tax raid through freezing the rates people pay
- An increase to the Carer’s Allowance to give cash to 60,000 more carers
The average house price is also expected to rise faster than it would have done with the Tories, though growth this year will fall from 1.7 per cent to 1.1 per cent.
The report added: “House price growth then averages around 2.5 per cent from 2026 until the end of the forecast, supported by nominal earnings growth.
“House prices have risen by around three per cent in the first half of the year, such that the average house price was around 3 per cent higher than our March forecast in mid-2024.
“Average house prices remain above our March forecast throughout, driven by the recent resilience and our forecast for higher nominal incomes.
“This would leave the average house price in the UK at £310,000 in 2028, around 2.5 per cent higher than our March forecast.”