There will be no government handouts for the hundreds of thousands of homeowners facing crippling increases in monthly mortgage repayments after the Bank of England’s decision to raise rates to 5%. To do so would defeat the object of the interest rate rise – to cool down the economy – and prolong the inflation crisis. Further rate rises look likely as inflation proves more sticky in the UK than many other high-income economies.
The government is instead opting to get the UK’s major banks to agree to a voluntary “mortgage charter”. This involves offering forms of temporary relief such as short-term switches to interest-only repayments, as well as extending the period between missed payments and forcible home repossession. Labour has proposed a similar response. This is sensible. Banks should be well placed to absorb some reductions in returns, being better capitalised and enjoying high returns on their lending on the back of recent interest rate rises. But if rates stay higher for longer, additional assistance may be needed to avoid repossessions.
