Labour claims about a £500 rise in mortgage payments lack important context

“Families are set to see their mortgage repayments increase by £500 a month.”

“We had a kamikaze mini-Budget two weeks ago. As a direct consequence, mortgages are going up. And not by a little—hundreds of pounds, £500 is the average, per month.”

The Labour Party has tweeted that families are set to see their monthly mortgage repayments rise by £500, in a claim repeated by a number of Labour MPs. And in an interview with Sky News last Thursday, Labour leader Sir Keir Starmer claimed some people’s mortgage payments are to rise by an average of £500 per month as a “direct consequence” of the government’s mini-Budget. 

Mr Starmer said: “We had a kamikaze mini-Budget two weeks ago. As a direct consequence, mortgages are going up. And not by a little—hundreds of pounds, £500 is the average, per month. Now there are not many people, not many families, that can afford that kind of increase. Sometimes these things happen because of some world event—this is self-inflicted with the government's mini-Budget two weeks ago.”

Mr Starmer was quoting figures from a Labour Party analysis, reported in the Independent, Manchester Evening News and elsewhere, and it appears that the Labour Party tweet and similar ones from MPs are also based on the same source.

That analysis found that across the country some homeowners face an increase in monthly mortgage payments of around £500. But it wasn’t an estimate for all mortgages—instead, it looked specifically at the rise in payments now faced by those coming off a two-year fixed-term mortgage.

And it wasn’t comparing mortgages now to those just available just before the mini-Budget, but rather those available in August 2020. This was not made clear by Mr Starmer in the clip shared by Sky News, or in the Labour Party’s tweet. 

Mortgage rates have risen sharply in the past few weeks, and some mortgage experts have attributed this to the mini-Budget, though this is disputed by others and movements in financial markets may be due to different factors.But what we do know is that the £500 increase in monthly payments estimated by Labour isn’t solely a consequence of the mini-Budget, because much of that increase is due to rates rising before the mini-Budget took place.

Labour’s calculations compared monthly repayments under a deal fixed in August 2020 at 1.6%, and a deal with the same terms, but fixed at 5% or 6% now. But rates have been rising steadily since the beginning of 2022—and for the kind of mortgage used in Labour’s example had already reached 3.64% three weeks prior to the mini-Budget.

How did Labour calculate its figures?

Labour’s press release explains that its analysis isn’t an estimate for all mortgages. Instead, it specifically looked at the cost of remortgaging for those coming off a two-year fixed mortgage, comparing monthly repayments on a two-year fix in August 2020 to repayments on a similar two-year fix now, with assumed interest rates of 5% and 6%.

Labour calculated that a £217,000 mortgage (the UK average in Q3 2020) with a 5% or 6% interest rate would cost £375 or £498 more per month respectively than a mortgage of the same term taken out in August 2020. (Labour assumed a 20-year mortgage term and a 75% loan-to-value in both cases.)

These figures are correctly calculated and do accurately show the change in borrowing costs for the mortgage products described, though of course there could be other factors which they don’t take account of (for instance, if the two-year fixed mortgage taken out in August 2020 was a repayment mortgage, the outstanding balance of their mortgage would have likely decreased after two years of repayments). 

However much of the hike in payments in Labour’s calculations is due to a rise in interest rates which occurred before the mini-Budget. 

Mortgage rates have been rising for months

Bank of England data shows the rate for a two-year fixed mortgage at 75% loan-to-value was already 3.64% at the end of August 2022, two percentage points above the level in August 2020.

Even if some of this may have been a result of the mortgage market preemptively acting to raise rates in anticipation of new policies trailed by Liz Truss during the Conservative leadership contest, it would be a stretch to attribute any of the 1.27 percentage point rise between August 2020 and June 2022 (when Mr Johnson was still Prime Minister) to her plans. 

So while some of the rise in payments modelled by Labour may be “a direct consequence” of the mini-Budget, much of it isn’t, because much of the rate rise occurred before the mini-Budget took place.

It’s hard to be precise about what proportion of the £500 rise in payments could have occurred after the mini-Budget on 23 September. 

But taking the average rate of 3.64% on 30 August 2022 (which still predated the mini-Budget announcement by three weeks) as a rough baseline, Labour’s example scenarios of mortgage rates rising to 5% or 6% would add around £160 and £280 onto monthly payments respectively—a large amount, but less than the £500 figure Mr Starmer used.Full Fact approached Labour for comment but did not receive a response.

Other factors 

While the rise in mortgage rates has become steeper since the mini-Budget, it’s hard to say definitively how much of that may be “a direct consequence” of the mini-Budget.

Financial markets move in response to a wide range of often-interconnected factors, not only government policy, which makes proving cause and effect difficult—and this isn’t a question we’ve attempted to answer in this fact check.

Mortgage rates are influenced by the Bank of England base rate (the rate it charges other financial institutions to borrow from it). The Bank raises interest rates to reduce inflation, as higher rates encourage people to save instead of spend, with the aim of reducing demand and therefore prices. 

On 22 September, the day before the mini-Budget, the Bank raised the base rate by 0.5%. Explaining why it had put up the rate to tackle inflation, the Bank said: “Higher energy prices is the main reason why inflation is currently so high. In particular, Russia’s invasion of Ukraine led to big increases in the price of gas. The war in Ukraine has also increased food prices.

“There is also pressure on prices from developments in the UK. Businesses are charging more for their goods and services because of the higher costs they face. There are more job vacancies than there are people to fill them, as fewer people are seeking work following the pandemic. That means that employers are having to offer higher wages to attract job applicants.”

Some mortgage and finance experts we spoke to made a direct link between the mini-Budget and the subsequent spike in mortgage rates.

David Hollingworth, associate director for communications at the broker L&C Mortgages, told Full Fact that the mini-Budget led to a "rapid increase" in levels of interest on mortgages. "The markets reacted unfavourably to the mini-Budget and volatile funding conditions have pushed fixed rates markedly higher," he said.

Andrew Montlake, managing director of the broker Coreco, said the mini-Budget had further pushed up market expectations.He told us: “The market expectation in June this year was the base rate of around 3%, and then it went to 4% and then after the [mini-]Budget went to 6%. So I think because of the mini-Budget, you're probably pricing in an additional 2% rise.”

The cause of recent market turmoil has been disputed though, with Prime Minister Liz Truss for instance claiming in the wake of the mini-Budget that difficult market conditions were a “global problem”.