Taxpayers will Have to Earn Thousands More to Pay for Mortgages

To fund the additional costs of a mortgage based on today’s two-year fixed interest rate of 6.07%, a basic rate taxpayer will have to earn additional gross take-home pay of £14,107, say leading tax and advisory firm Blick Rothenberg.

Robert Salter a client services director at the firm said: ‘It has been suggested that people should get a new higher paid job to mitigate increased bills. With these eye-watering cost increases, this is simply not plausible for most people. For most people, it would not even be possible to take on an extra part-time job (say over 3-4 evenings per week) to receive such income levels.’

‘Moreover, one should note that the above figures are best-case estimates of the additional gross income one would need to earn simply to cover the additional mortgage and heating costs many homeowners are now facing.’

Robert said: ‘The figures do not consider the punitive marginal tax rates which can apply in some situations child benefit clawback which can apply, where one partner is in receipt of child benefit and the other partner has an income of over £50,000 per annum. People caught by such ‘traps’ in the tax system could easily have to increase their income by at least £18,000 per annum or more, the exact number would depend upon the number of children involved, to simply cover the mortgage and heating cost rises.’

He added: ‘Young homeowners would be disproportionately affected by interest rate increases. Maintaining inflationary increases in pensions will create greater disparity between generations, as the employed will not see such salary increases. The government will need to address these disparities in the forthcoming budget.’

‘With such large increases in interest rates, the lending criteria for mortgages will tighten meaning that first-time buyers will feel even more squeezed. The effect on the housing market from these changes will be pronounced.’

‘Any tax changes announced by the government are modest about the huge increase in interest rates, and Kwasi Kwarteng will be rightly worried about these significant structural changes in his economic plans. The average two-year fixed-rate mortgage interest rate today is 6.07%. In December 2021, the rate was just 2.34%.’

‘The average house price in March 2022 was £297,254. Assuming a 75% interest-only mortgage, this would result in an increase in annual mortgage payments of £8,316. In December 2021, the average energy price cap was £1,223; it is now £2,500, increasing average energy prices by £1,277.  In this situation, the homeowner would have to pay additional costs of £9,593, nearly £800 a month from net pay.’