Homeowners face £13,000 mortgage shock after Reeves’s Budget

Families brace for another five years of pain as borrowing costs jump

Homeowners face paying an extra £13,000 on their mortgages following Rachel Reeves’s high-spend Budget.
Families are being warned to prepare for another five years of mortgage pain after official predictions revealed rates would jump while house prices continue to grow.
Yields on UK gilts – which have a knock-on effect on mortgage rates – have risen to a five-month high as investors reacted nervously to the Chancellor’s announcements.
Projections published by the Office for Budget Responsibility (OBR) said the average mortgage rate would jump from 3.7pc in 2024 to 4.5pc in 2027.
House prices are also expected to rise to £310,000 in 2028. The current average value of a UK home is £290,000, according to the Land Registry.
For those buying an average house at the average mortgage rate of 3.7pc, assuming a 10pc deposit, the monthly repayments would be £1,334.
But a 25-year mortgage at 4.5pc on a home worth £310,000, assuming a 10pc deposit, would have a monthly repayment of £1,550 – an increase of £216. This would be a difference of £12,960 in repayments over five years.
It comes after more than two years of mortgage pain for homeowners, sparked by Liz Truss’s disastrous mini-Budget in 2021.
Last week, Jeremy Hunt, the former chancellor, warned Ms Reeves’s decision to tear up Britain’s debt rules would “punish families with mortgages”.
Lenders reacted with uncertainty to Ms Reeves’s announcements. While Virgin Money became the first to increase rates, Santander announced cuts across the board hours after the Chancellor finished speaking.
But because the OBR numbers take into account the whole market, including older rates, which tend to be lower, those taking out new mortgages will face higher loans.
The average rate on a five-year fix on Thursday was 5.09pc, while a two-year fix was 5.39pc.
A spokesman for industry group UK Finance said: “We are currently in a place whereby people have rolled off and are rolling off lower fixed rates and on to higher rates. That drives an increase in the average rate numbers.”
Adrian Anderson, a mortgage broker at Anderson Harris, said: “Mortgage borrowers have been subjected to very high mortgage rates over the past two years.
“It feels like there is some much-needed momentum coming back in the property market. It would be a shame if the Budget starts to reverse this momentum.“
The Bank of England hiked its base rate 14 consecutive times to 5.25 pc in August 2023. The policy was intended to rein in consumer spending and thereby tame inflation, which peaked at 11.1pc in October 2022.
The Bank Rate was cut to 5pc this summer, but it is expected that further cuts may be delayed as a result of the Chancellor’s decisions.
The Bank of England prohibits lenders from lending more than 4.5 times salary to more than 15pc of their total book, limiting how much can be done to help those on lower incomes.