High-street banks called in for 'crisis talks' with Chancellor amid warning of ‘eye-watering’ mortgage increases

6 October 2022, 07:43 | Updated: 6 October 2022, 08:00

Chancellor Kwasi Kwarteng and Labour leader Keir Starmer
Chancellor Kwasi Kwarteng and Labour leader Keir Starmer. Picture: Getty
Fran Way

By Fran Way

Bosses from high-street banks have been called in for ‘crisis talks’ with the Chancellor as Labour warns that families face ‘eye-watering’ mortgage increases.

The chancellor will be speaking to lenders after homeowners are expected to have the biggest increase in mortgage costs in 14 years.

The average rate on a two-year mortgage has now surged to 6.07% - the first time it averaged more than 6% since 2008 financial crisis.

Analysis by the Labour Party suggests that an average UK buyer coming off a two-year fixed mortgage could experience a £498 monthly hike if interest rates do surge that high.

These estimates are based on assumptions that the homeowner has a 20-year mortgage term and they pay back 5% or 6% once their two-year fix ends in the third quarter of 2022.

READ MORE: Millions of families set to pay extra £21billion of income taxes despite talks of 'cutting taxes' mini-budget

READ MORE: Average two-year fixed-rate mortgage hits 6% for first time since 2008

This means that new homeowners are set to spend the highest percentage of their salary on their mortgage since the 1990s.

Anyone taking out a mortgage faces spending 25% of their income on mortgages.

Sir Keir Starmer has made fresh calls today for Liz Truss to reverse the budget saying the hike in prices will mean homeowners across the country are having 'sleepless nights,' adding: "And the Tory Government is entirely to blame.

"Liz Truss and Kwasi Kwarteng crashed the economy with their attempts to hand enormous, unfunded tax cuts to those who least need it.

"The humiliating U-turn they were forced into came too late - the damage had been done. Now we are all suffering the consequences. This was a crisis made in Downing Street but paid by working people.

"The Prime Minister must reverse her kamikaze budget, including her totally unfunded £17 billion corporation tax giveaway to the biggest companies. The burden of the Tories' fantasy economics should not fall on working people."

Caller questions reasoning behind getting unaffordable mortgages

Mr Kwarteng wants to speak to the banks after more than 1,000 mortgage products were pulled by lenders in a week.

The products have been withdrawn after market chaos sparked by last month’s mini-budget.

Bosses from Barclays, Natwest and Lloyds Banking Group are expected to attend the meeting, according to Sky News.

There is an expectation that the Bank of England might step in with another interest rate rise in the weeks to come, following Chancellor Kwasi Kwarteng's mini-budget last month, in order to further calm the markets. Such a move would only add further pressure to homeowners and those trying to buy a house.

A Government spokesman said: "There are a range of factors affecting mortgage and interest rates, which have been rising internationally in response to 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 the typical household around £1,000 a year and we are providing payments of £1,200 to the eight million most vulnerable families.

"This support is in addition to the Chancellor's growth plan, which brought forward the cut to the basic rate of income tax and reversed the national insurance rise, putting hundreds of pounds on average back in the pockets of working people."