Cabinet ministers blame the Bank of England for soaring mortgage costs, reports say.
The average two-year fixed mortgage interest rate hit 6.16% this week, its highest level since November 2008 amid the financial crisis. By comparison, the average two-year fixed rate was 4.24% at the start of last month and 2.34% in December 2021, financial news service Moneyfacts said.
The sharp rise follows Chancellor Kwasi Kwarteng’s widely criticized ‘mini’ budget last month, which also saw the pound plunge.
But the Sunday Telegraph reports ministers have blamed the Bank of England, with an anonymous cabinet member saying it was ‘late’ in raising rates and another saying it ‘didn’t increased interest rates as it should”.
The claims contrast sharply with public opinions, according to the latest polls.
A YouGov poll this week found 52% of voters blamed the government for raising mortgage costs, while just 5% blamed the Bank of England.
On Sunday, former Chancellor Alistair Darling raised concerns about the relationship between the government and the Bank of England.
He told the BBC‘s Sunday with Laura Kuenssberg, it appeared the government was “not talking” to the Bank, and it appeared the Bank and MPC were “completely caught off guard” by the mini-budget announcement.
“Every budget announcement and every statement I made, I would always make sure the Governor of the Bank of England knew what we were doing and we met very regularly,” he said.
‘Instead, what you saw was the government, and they are doing it again today, trying to trash the Bank of England, while having the Office for Budget Responsibility shut out.’
The average five-year fixed mortgage rate rose to 6.07% this week, hitting 6% for the first time since January 2010.
Lenders also withdrew more than 40% of proceeds after the mini-budget sparked market turmoil.
As of September 29, there were 2,340 residential mortgage products available according to Moneyfacts, up from 3,961 the previous Friday.
The Bank of England raised interest rates by 0.25 percentage points between December and July, then increased interest rates by 0.5 percentage points in August and September, leading to a rate of current basis of 2.25%.
Andrew Bailey, the Governor of the Bank of England, has previously said the Bank has not reacted slowly, saying: “We don’t make policy in hindsight.
“I would challenge anyone sitting here a year ago, two years ago, to say that there will be a war against Ukraine and it will have this effect on inflation.”
Writing on Twitter, Shadow Housing Secretary Lisa Nandy said the situation was a government-induced crisis.
“Homeowners coming out of a two-year fixed-term mortgage would have to pay £500 more per month on average,” she said.
“That should be 1.8 million people – 1 in 4 households with a mortgage. It is a crisis created in Downing Street and paid for by working families.
Last week Mr Kwarteng told the banks he would work with them to help resolve the issue.
“While it is the industry’s responsibility to provide the best value for mortgage rates, the Chancellor confirmed that the Treasury will continue to work closely with the industry in the weeks and months ahead,” the Treasury said in a statement. communicated after a meeting on Thursday.
Regarding the price increases themselves, a government spokesperson said earlier this week: “There are a range of factors affecting mortgage rates and interest rates, which have risen internationally in response global trends, including Putin’s illegal invasion of Ukraine.
“The government is doing what it can to support people with rising costs – our energy price guarantee will save around £1,000 a year to the typical household and we’re making payments of £1,200 to eight million most vulnerable families,” the spokesperson said.
“This support comes on top of the Chancellor’s growth plan, which has brought forward the reduction in the basic rate of income tax and canceled the National Insurance hike, putting an average of hundreds of pounds back in the pockets of workers.”