The hit to the economy from soaring mortgage rates will be equivalent to a 2p income tax hike. This is according to new analysis from the Liberal Democrats.

The figures show that annual mortgage repayments are expected to be around £15bn higher in December 2024, compared to the start of the cost-of-living crisis at the end of 2021.

This is more than the £13.7bn tax hit that would result from a 2p increase in the basic rate of income tax.

The analysis is based on the latest research from the Resolution Foundation on mortgage repayments, combined with official HMRC figures on the expected impact of tax changes.

For individual households with a mortgage, the impact of soaring mortgage rates is even more stark.

A typical household with an outstanding mortgage of £145,000 taken out in 2021 will be hit with a mortgage rise of around £3,600 a year, equivalent to a 6p hike in income tax.

The Liberal Democrats are calling for a Mortgage Protection Fund, which would offer targeted support of up to £300 a month to those families facing the steepest rise in mortgage costs and facing losing their homes. This would be based on past schemes and be fully paid for by reversing Conservative tax cuts to big banks.

Liberal Democrat leader Ed Davey says: “This is a Conservative mortgage tax on millions of families. People are seeing their monthly mortgage payments go through the roof, all because the Conservatives lost control of inflation and the economy.

“While the banks need to step up and help, there isn’t a moment to lose for Rishi Sunak to guarantee help for homeowners facing repossession with a targeted Mortgage Rescue Fund.

“Every day that goes past means more families are at risk of losing their homes through no fault of their own.”

Despite increasing media coverage of a potential protection fund, there are those within the industry who think government intervention is not the way forward.

Simon Webb, managing director of capital markets and finance at LiveMore is not a fan.

“Government intervention in the mortgage market is inappropriate and likely to have unforeseen consequences. If the government did set up a mortgage protection fund, homeowners would still have to repay the money back at a later date. Lenders already have forbearance options so if borrowers are struggling with higher mortgage rates they should speak to their lender about what solutions may be available”.

He adds: “Many lenders offer a payment holiday for up to six months or they could stretch the term to bring down monthly repayments. For those on capital and repayment mortgages, they may be able to switch temporarily to interest-only or part and part.”

SPF Private Clients chief executive Mark Harris says: ‘While calls to bail out mortgage borrowers are understandable, where do you draw the line? There is always a danger that in trying to help those struggling you end up supporting those wealthier homeowners who aren’t in such need of support and who could cope if they reined back on other spending”.

He adds: “Would wannabe first-time buyers think it fair that taxpayer money goes towards supporting those already on the housing ladder when they are struggling to get there?