'Tory Premium': Is the government to blame for 6% mortgage deals?

Interest rates - as set by the Bank of England - have not moved for four weeks and yet in that time, the cost of borrowing has surged.

Banks and building societies have been scrambling to reprice their mortgage rates.

The cost of an average two-year fixed-rate deal has risen by 0.7% in a month, according to Moneyfacts.

The upheaval was triggered by data on May 22 which showed that inflation in the UK was coming down slower than had been expected and was showing signs of feeding on itself.

Rightmove calls the current mortgage market "disorderly", although the asking price for the average property listed on its website stood at £372,000 in the four weeks to June 10.

That’s basically unchanged from May and actually a little higher than in June last year (when Bank Rate stood at 1% rather than 4.5% today). 

Sellers and estate agents are behaving as if they think all this upheaval hasn’t affected the property market but most economists are predicting house prices will fall in the months ahead.

Meanwhile, politicians are in a state of frenzy.

The next general election is a maximum of 18 months away and 2.5 million fixed-rate mortgage deals will expire over that period, leaving these households materially worse off as a result.

Understandably, Labour and the Liberal Democrats are trying to pin the blame for the spike in mortgage rates on the government.

Kier Starmer refers to it as the "Tory Premium", Shadow Chief Treasury Secretary Pat McFadden tweets that the government "put rocket boosters" on borrowing costs.

Last September, Liz Truss’s mini-Budget unquestionably caused mortgage rates to blow out with calm only being restored after Truss’s government collapsed.

But all the evidence suggests the latest increases owe more to lenders' belief that the UK has more of an inflation problem than had been thought and that interest rates going forward will need to be higher for longer to contain it.

The Liberal Democrats want the government to make direct financial support, of up to £300 per month, to homeowners who find themselves struggling, via a Mortgage Protection Fund. 

The prime minister ruled that out today, on grounds that such support (estimated at a cost of £3 billion) would be self-defeating - driving up government borrowing further, fuelling inflationary pressure and forcing interest rates higher still.

Financial help for mortgage holders, including presumably private landlords, would be a hard sell to anyone renting as well as anyone who would like to buy at some point who is hoping prices will become more affordable.

It is interesting and noteworthy that the Labour Party isn’t supporting the call.

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