Who will get the blame for UK mortgage misery?

As mortgage rates continue to soar, fingers have been pointed far and wide

Illustraton of Andrew Bailey, Rishi Sunak and Liz Truss against a Bank of England background
(Image credit: Illustrated / Getty Images)

The government has ordered banks to protect people struggling to pay their mortgages as interest rates were predicted to rise as high as 6% by the end of the year.

Traders are now pricing in a rise in interest rates to at least 5.75%, and there is a “one in five chance they could reach 6%”, said the Daily Mail, due to wages rising at a record pace, according to the latest official figures.

Consequently, British homeowners “are facing a fresh mortgage bloodbath”, the paper added, after markets “took fright” yesterday at signs of what looked like “a developing inflation spiral”.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.


Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

In response to the news, Andrew Bailey, the Governor of the Bank of England (BoE), announced that he would launch a review into why the central bank has been so wrong-footed by inflation, admitting that price rises were “taking a lot longer than we expected” to return to the BoE’s 2% target.

What did the papers say?

The latest data have “fuelled fears that inflation has become embedded in the economy”, said the Daily Mail, “heaping pressure on the BoE to respond next week”.

An estimated 1.4 million people are due to renew their fixed-rate mortgages by the end of this year, The Guardian said, meaning many more homeowners will now face dramatically higher repayments on their loans.

Mortgage rates “have soared since late May”, said the Telegraph, with a typical loan from Halifax rising from 4.59% to 5.41%. This has added almost £100 to the monthly repayments of a homeowner with a £200,000 debt, the paper said, citing research from L&C Mortgages.

Despite the government’s exhortation to mortgage lenders to go easy on borrowers, the rate of repossessions is also now starting to go up. Last week, UK Finance revealed that in the first quarter of this year there have been 1,250 repossessions, up 27% on the same period in 2022. “Any increase in arrears, even a modest one from a low base, is of concern,” it said.

The Labour Party squarely blames the Conservatives for the problem. According to Keir Starmer’s party, homeowners have been hit with a “Tory mortgage penalty” of £7,000 a year. Analysis by Labour suggests that the average homeowner who renewed their mortgage since short-lived Conservative treasurer Kwasi Kwarteng released his mini-budget last autumn is now spending an extra £150 every week.

“Britain’s homeowners continue to suffer thanks to the Tories’ reckless economic gamble,” said Pat McFadden, shadow chief secretary to the Treasury, referring to steps taken by the Conservatives during last September’s mini-budget when Liz Truss was prime minister.

According to This is Money’s Alex Brummer, however, it isn’t the Tories who are to blame, but “the Bank of England’s abject failure to beat back the scourge of inflation”.

For Brummer, the Bank’s “failure to attack inflation earlier, and its decision to maintain super-low interest rates for too long, is proving costly”.

What next?

Government borrowing costs – which directly impact mortgage rates – have now risen to their highest rate since the September mini-budget, noted the BBC’s economics editor Faisal Islam. But “the fact that this is not the same market panic as last autumn will come as little respite to many people renewing their mortgages.”

What is most concerning about the situation, Islam said, is that it “reflects market expectations that the UK has a specific problem with stubborn and sticky inflation that will require higher interest rates for longer”, which some markets betting on “a half percentage point rate rise next week, and rates settling closer to 6% than 5% at the end of the year”.

Overseeing such rising costs “is a very uncomfortable place for any party to find itself in”, said the i news site’s chief political correspondent Paul Waugh. “But for the Conservatives, who pride themselves on rewarding hard work and fulfilling the dream of home ownership, it’s political Kryptonite.”

Most commonly, the independent Bank of England would “take the heat for rate rises”, Waugh added, but “Liz Truss’s mini-Budget will forever be linked to the panic on the markets and mortgage rises” and Rishi Sunak has only “compounded the problem by declaring that it is ‘on me personally’ if his target of halving inflation this year is not met. Not on the Bank, on him”.

According to economist Julian Jessop, writing for the Telegraph, the situation “may give politicians sleepless nights”, but looking ahead, it will be “the Bank of England’s job to worry about”.

The Monetary Policy Committee “has the right kit to get inflation back down”, Jessop said. “The danger now is that it keeps reaching for the wrong tool – the hammer of ever higher interest rates – when the monetary screw has already been tightened enough.”

Continue reading for free

We hope you're enjoying The Week's refreshingly open-minded journalism.

Subscribed to The Week? Register your account with the same email as your subscription.