A household with a typical variable rate mortgage is facing an increase in payment equivalent to a 6p rise in income tax, figures suggest.
The Liberal Democrats calculated the impact on homeowners, from the base interest rate set by the Bank of England, increasing from 0.1 percent just over 18 months ago, to the new rate of five percent.
The central bank decided to increase the base rate from 4.5 percent to five percent last week, in its ongoing battle to tackle high levels of inflation.
The Lib Dems calculated a person who took out an average mortgage of £145,000 in 2021, would have seen their repayments increase by £301.
Analysts from the political party claimed this is the same as if that household’s income tax has increased from 20 percent, which is the current basic rate, to 26 percent.
This means the average household with a mortgage is paying the equivalent of an extra 6p in income tax on each £1 they earn of their taxable income.
The Lib Dems are calling for a ‘mortgage protection fund’ to provide payments of up to £300 to households struggling to make their payments.
After the latest base rate hike last week, some analysts warned rates could go up again. Adam French, senior editor at NerdWallet, said: “There are no guarantees that rates won’t rise again in the coming months.
“It’s likely many are doing it already, but budgeting carefully and planning ahead financially remains key.
“Those with a fixed rate mortgage are mercifully protected from rate increases during the fixed-rate period of their mortgage product.
“But these rate rises are a ticking financial time bomb for the millions due to remortgage over the next couple of years who will likely find the rates on offer are substantially higher than they are used to.”
The mortgage expert encouraged homeowners with a mortgage up for renewal in the next six months to talk through their options with a whole-of-market broker soon.
He explained: “They can help you consider ways to approach the end of your deal, with some lenders allowing you to book a new rate up to six months in advance of your current mortgage ending.”
Some experts have predicted the base rate could be lifted as high as six percent with inflation remaining at 8.7 percent in the latest figures.
For the latest personal finance news, follow us on Twitter at @ExpressMoney_.
