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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK government urged to help mortgage holders as rates keep rising; company insolvencies jump 40% – as it happened

Ed Davey United Kingdom United States Inflation The Bank of England
Properties for sale in Stoke-on-Trent, England.
Properties for sale in Stoke-on-Trent, England. Photograph: Nathan Stirk/Getty Images

Afternoon summary

A quick recap

The Liberal Democrats are calling for a £3bn emergency mortgage protection fund to protect people whose homes would otherwise be repossessed, as the UK’s mortgage market continues to tighten.

Sir Ed Davey told the Today Programme:

We’ve already seen the number of people’s homes been reposessed going up massively – surging by 50% in the latest quarter, and my worry is that we’re going to see lots of other families losing their homes, and we could be in a spiral of repossessions.

The banks have got to play a bigger role. They need to step in and help people who are in trouble.

But just as there was before, there needs to be more protection for those who are really suffering and the government just aren’t doing that.

But the idea of bailing out mortgage holders has been criticised, with former Treasury advisor Tim Pitt warning that subsidising mortgage payments would be regressive, and undermine monetary policy.

Here’s a breakdown of other options the government could consider:

The cost of fixed-term mortgage rates have continued to rise.

Data from Moneyfacts shows that the average two-year fixed rate increased from 5.92% yesterday to 5.98% today.

The average five-year fixed rate increased from 5.56% to 5.62%.

Expectations of more UK interest rates has pushed up the pound to a one-year high today, with sterling on track for its best week this year.

But higher borrowing costs are adding to the burden on companies, as well as home-owners. The number of companies falling into insolvency in England and Wales has jumped 40% year-on-year, new figures show.

In other news…

Updated

Over in the US, consumer confidence is recovering this month, according to the University of Michigan’s latest data.

It found that consumer sentiment rose by 8% in June, reaching its highest level in four months, reflecting greater optimism as inflation eased and policymakers resolved the debt ceiling crisis.

The survey adds:

The outlook over the economy surged 28% over the short run and 14% over the long run. Sentiment is now 28% above the historic low from a year ago and may be resuming its upward trajectory since then.

As it stands, though, sentiment remains low by historical standards as income expectations softened. A majority of consumers still expect difficult times in the economy over the next year.

On the jump in borrowing costs, Capital Economics say:

The surge in gilt yields above the level reached after the Truss/Kwarteng mini-budget last September has pushed mortgage rates even higher and illustrates that most of the drag on real activity and inflation from higher interest rates has yet to be felt.

And the heat in the housing rental market, which has pushed CPI rents inflation to a 29-year high, illustrates the persistence of domestic inflation. The latter is one reason why the Bank of England has more work to do.

British government short-term borrowing costs have hit a fresh 15-year high, which will add to pressure on mortgage rates.

The yield, or interest rate, on UK 2-year gilt yields has risen to 4.973%, Reuters reports, up by 7 basis points to the highest level since July 2008.

That means short-term borrowing costs are still higher than after last autumn’s mini-budget, which spooked the markets.

But, as FT Alphaville explains here, that does not vindicate Liz Truss’s (mis)handling of things.

In the cryptocurrency world, the Binance exchange is under preliminary investigation for aggravated money-laundering, the Paris prosecutor’s office said on Friday.

Binance is also being investigated for suspected illegal canvassing of clients.

The prosecutor’s office said in a statement:

“The investigation is about, on one hand, the unauthorised practice of the profession of virtual assets service provider and, on the other, about aggravated money-laundering.”

It’s the latest in a series of legal headaches for Binance, aftter it was accused of operating a “web of deception” by the US financial watchdog.

Over in New York, the stock market has opened higher as traders cheer hopes that US interest rates may be near peaking.

After the Federal Reserve left interest rates on hold on Wednesday, the main US share indices are higher in early trading.

The Dow Jones industrial average has gained 101 points or 0.3% to 34,509, while broader S&P 500 index is also 0.3% higher.

High rents and mortgage payments are driving up poverty among public sector workers, the UNISON union has warned.

In a new report, UNISON shows that housing costs have increased for more than three in five public sector staff, such as cleaners, care staff and teaching assistants.

Almost a third (32%) of private renters report they are spending at least 60% or more of their household income on accommodation, compared to 25% of housing association tenants, 24% of council tenants amd 19% of those paying a mortgage.

UNISON head of local government Mike Short says:

“Housing costs are driving up poverty among public service workers and their families.

“It’s unacceptable that cleaners, care staff and other frontline employees are at risk of destitution and forced to live in overcrowded, poor-quality homes far from their place of work.

“The government must take action including boosting wages for public service workers so they can afford decent housing.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, argues here that the higher cost of mortgage refinancing will be a drawn-out drag on the economy, not a sudden shock:

Here’s Holly Mackay, CEO and Founder of Boring Money, on the recent rise in mortgage rates:

The average 2-year fix is now about 0.4% more than it was just two weeks ago, and with 1.4 million fixed-rate deals coming to an end this year, the scale of the pain is broad.

And as always there’s a ripple effect. That’s 1.4 million households with less to spend on goods and services elsewhere.

More here.

The jump in company insolvencies in England and Wales last month shows the economy is struggling, warns Tim Symes, partner for insolvency and asset recovery at law firm Stewarts:

“If the company insolvency figures were a heartbeat, then it would be erratic. After a surprisingly large drop in April following a massive spike in March, figures have reached a new record high in May.

Voluntary liquidations have overwhelmingly driven the spike, likely due to company boards deciding their company cannot continue in the face of ever-rising interest rates and unrelating inflationary pressures.

Despite somehow managing to avoid recession, these figures tell us England’s economy is very much still in the woods.”

Updated

Here’s our news story about the latest strikes to hit the UK rail network:

The jump in mortgage rates could cause some housebuyers to pull out of deals, in the hope of cheaper borrowing in the autumn, predicts Richard Donnell, director of research and insight at Zoopla.

Donnell says:

“Rising mortgage rates will hit the buying power of new buyers who don’t have a mortgage arranged. Those that have got offers locked in at closer to 4% will most likely push ahead with purchases where they feel secure in their work and/or need to move for job or family reasons.

“Those who were going to move but for less needs-based reasons may look to pull out of deals and wait over the summer.

“For those with a home and re-mortgaging, there will be a jump in mortgage costs as people move from sub-2% or 3% to 5% mortgage rates.

Some homeowners may have to look to extend mortgage terms by two to five years to reduce the increase in repayments, Donnell says, adding:

This is a solution but comes with the cost of paying more interest to the bank.”

Bad news for mortgage holders – French bank BNP Paribas predict UK interest rates will rise by a whole percentage point before the end of the year.

Their Markets / Credit 360 team say:

  • We expect the Bank of England to hike rates by 25bp at its meeting on 22 June while leaving its conditional forward guidance unchanged.

  • At face value, this could seem too tepid for a central bank that is facing a significant problem of underlying inflationary pressures.

  • However, we think the language of the minutes, and likely subsequent communications, will reaffirm the MPC’s decisiveness to act and suggest that further tightening is in the offing.

  • Indeed, we expect the MPC to hike by a cumulative 100bp to take Bank Rate to a terminal level of 5.50% by November.

Updated

The UK’s railway regulator is examining whether customers are being ripped off when they buy food and drink at railway stations.

The Office of Rail and Road (ORR) has launched a market study into railway station catering today, to examine if customers are losing out to excessively high prices.

Grahame Horgan, ORR’s head of competition, said:

“As consumers across the country are affected by the rising cost of living, we want to ensure that passengers are getting affordable food and beverages when using station facilities.

It is important that the railway industry gives consumers good value for money and improves their journey experience.”

Matt Smith, Rightmove’s mortgage expert, says:

“It’s been a volatile couple of weeks for the mortgage market and we’ve continued to see average fixed rates creep up this week in both two-year and five-year fixed deals.

“The average rate for a five-year fixed, 85% loan-to-value (LTV) mortgage is now 5.24%, having been 5.20% earlier this week and 5.16% this time last week.

“This equates to a £15 per month increase for someone taking out this kind of mortgage now rather than last week based on the current average asking price for a home. Next week’s inflation figures and Bank of England base rate decision will be really key for setting the tone for the mortgage market over the coming weeks.”

Global shares have risen 14-month highs today, Reuters reports, as investors took the view that the Federal Reserve may not need to raise rates much more.

The MSCI All-World index has gained 0.2% to around its highest since mid-April 2022, following the Fed’s decision to leave interest rates on hold on Wednesday.

Philip Shaw of Investec predicts the Bank of England will raise interest rates to a peak of 5.25% this autumn.

That will start with a quarter-point rise to 4.75% next Thursday, Shaw forecasts, adding that the outlook for rates further ahead looks exceptionally hazy.

He says:

However our conclusion is that in addition to next week, the MPC will raise the Bank rate in August and September resulting in a terminal rate of 5.25%.

Previously we had expected the Bank rate to peak at 4.75%.

Our baseline case is that rates will not rise as far as 6%, but policymakers are currently in a state of heightened data dependency and we note that that significant risks exist in both directions. If we are correct about a household consumption-led slowdown, interest rates could come down in 2024 but this seems more likely to take place in Q2 rather than Q1.

Updated

Odey Asset Management has suspended trading in a fourth fund following a “sizeable level” of withdrawal requests, as sexual misconduct allegations against founder Crispin Odey continue to rock the company.

The firm said in a letter to investors on Friday that it was temporarily suspending trading in its $80mn Special Situations fund to sell assets in an “orderly fashion” to meet the redemptions, the Financial Times reports.

It emerged yesterday that OAM is to be broken up, one week after multimillionaire Conservative and Brexit donor Odey was accused of sexual misconduct by junior female members of staff.

Odey Asset Management (OAM), the £3.5bn hedge fund Odey founded 32 years ago, announced on Thursday it was in “advanced discussions for rehousing funds and transferring certain fund management activities and individuals to other asset managers”.

Buying agent Henry Pryor argues that the UK government will resist calls to support mortgage-holders, as it would undermine the Bank of England’s efforts:

Sterling on track for biggest weekly rise of 2023

Not only has the pound hit a one-year high, it’s on track for its best week of 2023.

Sterling has gained 2.2 cents. or 1.75%, against the US dollar so far this week to around $1.28.

That would be its best week since November 2022, lifted by expectations that UK interest rates will keep rising to squeeze out inflation.

The boss of Tesco said food inflation has probably peaked but warned that prices were likely to stay high and urged the government to ease Brexit rules, which are driving up the cost of importing groceries.

More here….

Drivers at two train operators will take industrial action in disputes separate to the ongoing national row over pay, it has been announced.

Members of Aslef at Avanti West Coast will strike on July 2, while drivers employed by London North Eastern Railway (LNER) will refuse to work overtime from July 1 until further notice.

What's going on in UK mortgage market?

PA Media have written a Q&A about the UK mortgage market:

Q: What has been happening in the mortgage market in recent weeks?

Rates have been on the increase and some lenders temporarily withdrew deals available through brokers, later putting them back on sale, to help manage the flow of applications.

Q: Why have mortgage rates been increasing?

Some variable rate mortgage deals directly track the Bank of England base rate and they automatically increase in line with the base rate. The rate has climbed 12 times in a row.

Borrowers can also end up on a standard variable rate (SVR) when their initial mortgage deal ends. The SVR is set by lenders individually but it can often roughly follow movements in the base rate.

The bulk of mortgaged UK homeowners tend to take out fixed-rate deals. Swap rates underpin the pricing of fixed-rate mortgages and these have been rising amid expectations around inflation, which has turned out to be more “sticky” than some had expected.

The Consumer Prices Index (CPI) measure of inflation rose by 8.7% in the 12 months to April 2023, according to Office for National Statistics (ONS) figures.

Q: Is there more mortgage pain to come?

Given that a large chunk of homeowners are sitting on fixed rates, many are yet to feel the impact of recent mortgage rate increases on their budgets. This will add to the squeeze that households are already feeling from a range of other bills, such as surging food costs.

Around 800,000 fixed-rate deals are due to end in the second half of this year, according to trade association UK Finance.

Q: What is next for mortgage rates?

No one can say for certain what will happen to mortgage rates in the future.

What we do know, however, is that the next Bank of England base rate decision is next week.

Experts are predicting that there will be a 13th base rate increase, with a potential 0.25 percentage point rate hike, taking the base rate to 4.75%.

Meanwhile, fixed-rate mortgages have already been on an upward march.

The average two-year fixed-rate residential mortgage on the market was sitting at just below 6% on Friday, according to financial information website Moneyfactscompare.co.uk.

Q: What help is available if I am struggling with my payments?

Speak to your lender as early as possible. They may be able to suggest various options to keep monthly payments more manageable, although some, such as extending the mortgage term, may mean paying more over the longer term, so any decision needs to be weighed up carefully.

If you are coming to the end of a mortgage, a broker could help with finding a deal that is right for you.

Updated

Two-year fixed mortgage rate on brink of hitting 6%

UK fixed-term mortgage rates are continuing to climb towards 6% today, adding to the pressure on borrowers looking for a new loan.

Data from Moneyfacts shows that the average two-year fixed rate increased from 5.92% yesterday to 5.98% today.

The average five-year fixed rate increased from 5.56% to 5.62%.

Lenders also withdrew deals, with the number of residential mortgages available falling from 5,080 yesterday to 4,923 this morning.

As we mentioned earlier, mortgage rates of 6% will be as painful as much higher headline rates in the last century, due to the increase in loan amounts vs incomes.

Updated

Public are dissatisfied with Bank of England’s handling of inflation

The British public are increasingly unhappy with the Bank of England’s flailing attempts to get a grip on inflation, a new survey has found.

The BoE’s own quarterly survey of public attitudes to inflation has found that net satisfaction with the central bank hit its lowest level since records began in 1999.

Respondents were asked to assess the way the Bank of England is ‘doing its job to set interest rates to control inflation’. The net satisfaction balance, the proportion satisfied minus the proportion dissatisfied, fell to -13%, down from -4% in February 2023.

Perhaps not a surprise, given inflation hit a four-decade high last autum at 11.1%, over the Bank’s target of 2%.

The better news for policymakers is that the British public’s expectations for inflation in the coming 12 months cooled in May, falling to 3.5% from 3.9% in February.

For inflation in five years’ time, expectations were steady at 3.0%.

When asked about the future path of interest rates, 57% of respondents expected rates to rise over the next 12 months, down from 58% in February 2023.

Asked what would be ‘best for the economy’ – higher interest rates, lower rates or no change – 16% thought rates should ‘go up’, unchanged from February 2023. 37% of respondents thought that interest rates should ‘go down’, up from 33% in February

When asked what would be ‘best for you personally’, 26% of respondents said it would be better for them if interest rates were to ‘go up’, down from 27% in February. 31% of respondents said it would be better for them if interest rates were to ‘go down’, up from 30% in February.

Perhaps surprisingly, 3% of respondents thought that interest rates had fallen over the past 12 months, while 75% knew they had risen.

Updated

The UK’s competition regulator has cleared Amazon.com’s planned $1.7bn acquisition of iRobot Corp, maker of the Roomba vacuum cleaner.

The Competition and Markets Authority (CMA) said it had concluded that the deal would not lead to competition concerns in the UK, giving Amazon its green light to expand its stable of smart-home devices.

In April, the CMA had launched a “Phase 1” probe into the deal, which was announced in August last year.

Today’s ruling comes at a time when antitrust regulators are increasingly wary of giant companies acquiring smaller rivals; as shown by the CMA blocking Microsoft’s takeover of Activision Blizzard.

Updated

Rising interest rates pushed more companies to collapse across England and Wales in May, explains David Kelly, head of insolvency at PwC.

“Today’s data shows that the number of insolvencies in May has shot up, following a brief dip in April due to the Easter break. The 2,552 insolvencies is the highest monthly number we’ve seen this year so far and, given that trading conditions remain extremely challenging, the number will likely continue to climb through the second half of the year.

“In addition, rising interest rates have been a blow to struggling businesses, with the potential for more pain when the Bank of England meets next week to decide the base rate. For small businesses in particular, these higher rates make it increasingly difficult to take on and finance debt, with many having to use their emergency cash reserves to do so, thus intensifying liquidity issues. As such, we’re seeing an uptick in the number of firms needing debt restructuring services and looking at ways to compromise their existing on and off balance sheet liabilities.

“Approximately 99% of liquidations in the first quarter of this year have related to companies with annual turnover of less than £1m. As both interest rates and inflation look set to remain high in the short term, our analysis indicates that this trend will persist, with smaller businesses continuing to come under the most pressure.”

Nick O’Reilly, Director of Restructuring and Recovery at accountancy group MHA, argues that the rise in insolvencies (see last post) is down to the fallout from a lack of due diligence over the Government’s Covid loan scheme:

O’Reilly says the majority of companies entering administration will be those that would have failed, if Covid-19 never happened, but were kept afloat by support:

“The UK is suffering the consequences of the government’s reckless Covid-19 loan scheme, with greater numbers of companies now failing who were previously propped up during the pandemic by government lending.

“The government’s Coronavirus Business Interruption Loan Schemes and Future Funds should have served companies who had the ability to survive and with adequate cash reserves. Instead loans were given to anyone who asked, regardless of whether they could pay them back. Three years after the pandemic began, high inflation, burdensome energy prices and low consumer confidence has prevented millions of businesses from recovering, with many now facing the wall.

Company insolvencies climb in May in England and Wales

Newsflash: Company insolvencies in England and Wales have jumped by 40% year-on-year

There were 2,552 registered company insolvencies in May, new statistics from the Insolvency Service show, up from 1,825 in May 2022. It’s also an increase on April, when 1,688 insolvences in England and Wales were reported.

This is “higher than levels seen while the Government support measures were in place in response to the coronavirus (COVID-19) pandemic and also higher than pre-pandemic numbers”, the report says.

There were 189 compulsory liquidations in May 2023, 34% higher than in May 2022, as more companies collapse under the strain of rising costs and higher interest rates.

The number of Creditors’ Voluntary Liquidations (where directors opt to wind up an insolvent company with no prospect of recovery) rose by38% to 2,181.

The Insolvency Service explains:

Numbers of compulsory liquidations have increased from historical lows seen during the coronavirus pandemic, partly as a result of an increase in winding-up petitions presented by HMRC.

A chart showing company insolvencies in England and Wales
A chart showing company insolvencies in England and Wales Photograph: The Insolvency Service

Why mortgage support idea is a mistake...

A support package for mortgage holders would be a mistake, says Tim Pitt of consultancy Flint, a former senior adviser to former chancellors Philip Hammond and Sajid Javid.

Pitt argues it would undermine the transmission of monetary policy (the process by which higher interest rates reach the economy), would unfairly help wealthier people, distort the housing market, and be a poor use of fiscal resources.

Updated

Deutsche Bank expects the Bank of England to hike Bank Rate for a thirteenth consecutive meeting next Thursday, by a quarter-point to 4.75%.

But the decision by the monetary policy committee probably won’t be unanimous; they predict a 7-2 vote tally, with both Silvana Tenreyro and Swati Dhingra voting to keep rates on hold.

Deutsche then expect two further rate hikes taking Bank Rate to 5.25% in September, before a pause in November.

Senior economist Sanjay Raja explains:

Inflation, we think, will continue to remain volatile and skewed to stronger prints in the near-term.

And the labour market will also likely remain hot in the very near-term as the ONS incorporates more of the forthcoming pay deals into the hard data. We do, however, see downside risks emerging from late Q3 to early Q4, allowing the MPC to push the pause button at the November meeting.

If mortgage rates do hit 6% thent homeowners will be spending 23.6% of their incomes on mortgage repayments, the most since 1991, Neal Hudson, a property market analyst at BuiltPlace, has calculated (via The Times).

He’s also made this excellent chart, showing how effective mortgage costs are close to their levels in the 1980s even though interest rates are lower:

(because mortgage are much bigger today, meaning repayments are a large bite of income).

RSM predicts UK interest rates will peak at 5%

Economists at RSM, the accountancy group, have predicted this morning that UK interest rates will peak at 5%.

That’s half a percentage point higher than today, but lower than the 5.75% peak currently implied in the money markets.

RSM argue that falling fuel, energy and food prices on the international markets will pull UK inflation down to 4% by the end of this year (hitting the government’s target of halving it).

Forecasts for UK inflation
Forecasts for UK inflation Photograph: RSM

That means the case for further rate hikes becomes a bit less convincing, argues RSM economist Thomas Pugh.

He says:

‘Another two interest rate hikes seem likely, which would take interest rates to 5%. It would, therefore, seem sensible for the MPC to take a hawkish pause in much the same way that the Fed did on Wednesday. This would allow the MPC to examine the impact of its previous rate hikes, while giving it the option to hike further if needed.

‘As it happens, we think by September it will become clear that inflation is on a steep downward track and that enough slack has emerged in the labour market for the MPC to stop its tightening cycle at 5%. However, the risks are definitely weighted toward intertest rates going higher.

Financial markets are probably “over-egging” the chances that rates reach 6%, Pugh says, cautioning “but don’t rule it out”….

Homeowners are spending a bigger slice of their income on mortgage repayments than at any time since the financial crisis of 2008 as rates continue to rise towards 6%, The Times reports this morning.

They explain:

Mortgage repayments on new loans made up 20.4 per cent of borrowers’ incomes on average between January and April, according to the trade association UK Finance.

This is up from under 17 per cent in 2020 and the largest percentage since November 2008.

Retailer Tesco says Britain has passed peak food inflation

There are “encouraging early signs” that food price inflation is starting to ease, according to the boss of Tesco.

Tesco CEO Ken Murphy told reporters this morning:

“We do believe that we’re past the peak inflation.”

That would cheer the Bank of England, as it weighs up how high interest rates must rise to fight the cost of living crisis.

Murphy also claimed the BoE has been unfair in blaming supermarkets for Britain’s stubbornly high inflation level.

Asked if he believed the Bank of England was being unfair in calling out the industry, Murphy said: “Yes I do.”

Murphy was speaking after Tesco reported a 9% rise in UK sales in the 13 weeks to 27 May.

Britain’s largest supermarket says it has “led the way” in cutting prices on everyday essential items, amid criticism of the retail sector for price rises.

Travis Perkins warns on profit as high interest rates hit housing market

UK building supplier housebuilder Travis Perkins has warned its profits will miss expectations, in a sign that difficulties are building in the UK housing market.

Travis Perkins has 1,400 branches around the UK, and says it is the country’s largest distributor of building materials, supplying cement, bricks, roof tiles, tools, plumbing, heating kit and electricals products to constructors.

But this morning, the company warns that the housing market is being hit by higher interest rates and weaker consumer confidence.

In light of ongoing challenging market conditions, full year adjusted operating profits are now expected to be around £240m, missing the £266m which the City expected.

It told shareholders:

The Group delivered a resilient performance in the first quarter but has not seen the anticipated easing of market conditions in the second quarter to date.

Volumes in both the new build housing and private domestic RMI [repair, maintenance, and improvement] markets continue to be impacted by higher interest rates and weaker consumer confidence driven by persistent, higher than anticipated consumer price inflation.

Shares in Travis Perkins have fallen over 6% in early trading, while housebuilder Barratt Development has dipped 1.5%.

Updated

In the City, the pound has hit a new one-year high above $1.28 agains the US dollar.

The rally, to the highest level since April 2022, comes as traders anticipate further increases in UK interest rates, while America’s central bank paused its rate increases on Wednesday.

Explainer: What could government do to help mortgage borrowers?

My colleague Hilary Osborne has examined what support the government could prove.

It could, for example, widen the existing support for people on benefits who are struggling to meet their monthly mortgage payments.

Tax relief on mortgage payments could potentially be brought back, which would provide financial relief to borrowers, or lenders could be urged to exercise more forbearance rather than repossessing homes.

Or (and this is rather unlikely), the government could take control of interest rates back off the Bank of England. At this stage, though, the government has been backing the BoE as it tries to tame inflation.

Here’s the full piece:

Atom Bank says more support needed, as it raises rates

Atom Bank is also lifting its mortage rates today – by between 0.25% to 0.6% on certain products.

Mark Mullen, Atom’s chief executive, says the bank raised rates because the financial markets are pricing in further increases in Bank of England base rate.

Mullen isn’t sure that UK interest rates will hit 6%, as some have forecasts, but believes we are in a higher rate environment:

I think that the current interest rate environment is likely to remain there-or-there abouts where we are today for much longer than perhaps people might wish.

Q: So do home owners and borrowers need support, as the Liberal Democrats are calling for?

Mullen says they do, adding that support can take many forms.

As well as the interest rate environment, but also, “what are banks doing to help them in their savings rates?” and are they helping customers before they miss mortgage repayments, Mullen asks.

So there’s lots that banks can do, but sure, they absolutely needs support.

Q: But when public finances are strained, is it right to give money to people who have borrowed money to buy a house?

Mullen warns that people who took out mortgages a few years are going to “get a shock” when they remortgage, and move onto a rather higher rate.

The reality is there’s pain all around in a high-inflationary environment.

Liberal Democrats: emergency mortgage protection fund needed

Sir Ed Davey, leader of the Liberal Democrats, is calling for a £3bn emergency mortgage protection fund to protect people who would otherwise be repossessed.

Speaking on Radio 4’s Today programme, Davey says the government should provide the kind of help that was available after the last financial crisis.

Davey explains:

We’ve already seen the number of people’s homes been reposessed going up massively – surging by 50% in the latest quarter, and my worry is that we’re going to see lots of other families losing their homes, and we could be in a spiral of repossessions.

The banks have got to play a bigger role. They need to step in and help people who are in trouble.

But just as there was before, there needs to be more protection for those who are really suffering and the government just aren’t doing that.

However… wouldn’t this be regressive?

Q: WoulIs it right that people who don’t own homes should support those who do? It would heat up demand, when the Bank of England is trying to cool it, and aren’t there better uses of public money? Plus, lax monetary policy has helped people who own assets…

Davey says the Lib Dems’ proposal is “quite targeted and time-limited” and it will get help to people who would otherwise lose their homes.

If we don’t give that sort of help to those people, you’d see a spiral down and it will hit the whole economy.

He adds that there also needs to be more support for carers, and for renters “who are getting a really poor deal”.

Davey argues that MPs should spend next Monday debating the cost of living crisis, not all day debating Boris Johnson following yesterday’s privileges committee report.

Davey says:

We should spend the day thinking about how we help people, whether it’s the Liberal Democrat idea of a mortgage protection fund, our proposals to help people with energy bills…

We need to help people. Families and pensioners, millions of them are struggling and the Conservatives are just failing because of their chaos.

Q: You’re proposing spending £3bn to help people who borrowed to buy homes, when many people can’t afford to, and younger people are looking forward to a housing crash so they can get onto the housing latter. What does that say about your priorities?

Davey says the Liberal Democrats want to reverse the tax cuts given to the banks in the last few years, and use some of that extra money to help people who would otherwise lose their homes.

This isn’t their only policy, he points out – citing the need to invest in the health service so the UK has enough GPs, and to tackle the wider cost of living crisis.

But if we don’t tackle the mortgage crisis, it’s going to see a spiral downwards.

Updated

Introduction: Mortgage rates move towards 6%

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

UK mortgage rates are heading towards 6% as the squeeze on borrowers tightens – prompting calls for the government to provide emergency help.

The average rate on a two-year fixed mortgages rose to 5.92% yesterday, up from 5.9% on Wednesday, and 5.26% at the start of last month.

Average five-year fixed rate mortgage rates hit 5.56 per cent, up from 5.54% 24 hours earlier – and 4.97% at the beginning of May.

Nationwide, the building society, is joining the rush to raise rates today – increasing its new fixed rates by up to 0.7 percentage points.

These moves come as City traders predict UK interest rates could hit 5.75% by the end of this year, up from 4.5% today. The Bank of England seems certain to raise interest rates next week.

The yield (or interest rate) on two-year government bonds – used to price fixed-term mortgages – is trading at 15-year highs this week.

Although rates are below their levels before the 1990s housing crash, mortgages today are much higher – and mortgage payments make up a larger slice of people’s income.

So, the squeeze is already the worst since the early 90s, analysts say:

The Liberal Democrats are calling for an emergency support fund for mortgage borrowers, which would provide temporary grants to those most at risk of losing their homes.

Liberal Democrat Treasury spokesperson Sarah Olney MP said earlier this week:

“This Conservative government has unleashed mortgage hell for millions of homeowners but isn’t lifting a finger to help.

“Rishi Sunak is totally out of touch with the concerns of people across the country worried sick about how they will afford their monthly mortgage payments.

“The Prime Minister should haul the banks into Downing Street and discuss what extra support can be given to homeowners on the brink. The very least that Conservative Ministers should do is take responsibility for the mess they’ve created instead of sitting on the sidelines.”

The inflation squeeze in the eurozone prompted the European Central Bank to lift its interest rates again yesterday.

But earlier today, the Bank of Japan maintained its ultra-easy monetary policy even though Japanese inflation is higher than expected. The BoJ signalled it would focus on supporting Japan’s fragile economic recovery, and remains confident that inflation will slow later this year.

European stock markets are set to open a little higher:

The agenda

  • 10am BST: Final estimate of eurozone inflation in May (expected to confirm a fall to 6.1%)

  • 3pm BST: University of Michigan’s index of US consumer sentiment

Updated

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