Ministers have waded into the unfolding mortgage crisis, piling pressure on lenders to be “flexible” with those struggling to keep up with soaring repayments.
Jeremy Hunt has summoned bosses from Britain’s leading banks to Downing Street for a summit at which he will urge them to do more to support customers.
The chancellor will ask on Friday what help banks plan to give to those unable to keep up with higher mortgage payments, as well as what “flexibilities” they will offer to families in arrears.
Mr Hunt’s intervention came as the former deputy governor of the Bank of England joined calls for banks to “work with borrowers who might be struggling”.
Economist Sir Charlie Bean told The Independent there are “loads of things” lenders can do, which would be more “appropriate” than taxpayers being asked to stump up support.
“Whether you allow them to temporarily lower payments, extend the term of the mortgage, there is loads lenders can do,” Sir Charlie added.
“I don’t see why the taxpayer should be asked to bail out a subset of households who happen to have taken out what turned out to be excessively large mortgages,” he said.
But Sir Charlie, who has previously served as the Bank’s chief economist, cautioned that it would be a “mistake to protect all mortgage holders”, saying any support should be “highly targeted”. He said, “otherwise you run into the fact that the [Bank of England] are going to have to make even bigger interest rate increases”.
Lenders are jacking up mortgage costs in response to the Bank of England’s interest rate hikes – aimed at bringing spiralling inflation under control. The bank has increased the rate 12 times since December 2021, from 0.1 per cent to 4.5 per cent today.
And, with a further increase expected on Thursday, the average two-year fixed residential mortgage rate has jumped to 6.07 per cent, according to figures from Moneyfacts – approaching levels seen in the wake of Liz Truss’s disastrous mini-Budget last autumn.
Homeowners remortgaging next year face an average £2,900 increase in annual mortgage costs as lenders jack up prices in response to the Bank of England rising interest rates.
And personal finance expert Martin Lewis has warned a “mortgage ticking time bomb is now exploding”.
But the chancellor ruled out a package of financial support for households on Tuesday, arguing it would “prolong the inflationary agony people are going through”.
Mr Hunt said: “Much as we sympathise with the difficulties and will do everything we can to help people seeing their mortgage costs go up, we won’t do anything that would mean we prolong inflation.”
But, confirming he will pressure lenders to do more, he told the Commons: “I will be meeting the principal mortgage lenders to ask what help they can give to people struggling to pay the more expensive mortgages and what flexibilities might be possible for families in arrears.”
Former pensions minister Baroness Ros Altmann urged ministers to go further, claiming banks should be “required” to boost support to customers. She said lenders have behaved “egregiously” since the financial crisis in a bid to “maximise profits” and it was time for them to “fulfil some of their social duties”.
She told The Independent: “They need to make sure they do not repossess lightly, give people the chance to stay in homes, even if they can only pay some of their mortgage.” Baroness Altmann also called for banks to offer extended loan terms to those struggling and offer payment holidays in some cases.
“I would hope they would be required to do this. If lots of people have their homes repossessed and are thrown onto the street, where are they going to live?” She said.
“If the banks are allowed to do that, it will be the wrong way to go,” she added.
It comes as cabinet minister Michael Gove suggested mortgage rates fixed for 25 years could help ease spiralling monthly costs.
Acknowledging that it was becoming “more difficult to have access to mortgage finance”, Mr Gove that longer-term fixed deals could be the answer to ending unpredictability faced by homeowners.
“One of the things that is right for levelling up overall is making sure we can develop the types of products that are elsewhere in the world,” the levelling up secretary told The Daily Telegraph.
Money Saving Expert, Mr Lewis called for “soft or hard political pressure” on the banks.
He told ITV’s Good Morning Britain on Tuesday: “I can’t see this government bringing in a mortgage rescue package, even if it wanted to do so.”
But he renewed calls for banks to allow people to temporarily lower payments, switch to interest-only, take payment holidays or extend the terms of the loan.
Spiralling mortgage costs have also fuelled calls for windfall taxes on the banking sector.
Baroness Altmann said a windfall tax was a “reasonable thing to call for” as banks have “benefited from the extraordinary policies of the Bank of England”.
And Liberal Democrat leader Sir Ed Davey called for a £3bn emergency fund to be paid for by reversing recent tax cuts on banks.
Labour’s Rachel Reeves urged Mr Hunt to apologise for what she called the “Tory mortgage penalty”, pressing the chancellor on what he was doing to curb higher mortgage rates.
Speaking in the Commons, the shadow chancellor said: “While the government squabbles over parties and peerages, mortgage products are being withdrawn and replaced by mortgages with much higher interest rates.
“This is a consequence of the Conservative mini-Budget last year and 13 years of economic failure, with inflation higher here than in similar countries.”
