Across the country, homeowners are facing a mortgage payments crisis. They ultimately face the possibility of losing their homes. Meanwhile, the government says nothing and the banks sit on their hands, offering next to no support.
But the very same banks that offer mortgages are taking in huge profits. So here’s a solution to the current crisis: a decade since hundreds of billions were spent bailing them out with taxpayers’ money, the banks need to pull their weight and support customers.
The big five banks – Barclays, HSBC, Lloyds, NatWest and Standard Chartered – posted profits of around £37bn for 2022. An analysis by the Unite union in May found that UK banks made an extra £7bn by refusing to pass on higher interest rates to savers. In April 2023, many of those banks were paying customers rates of less than 1.3% on their easy-access savings accounts, despite the Bank of England base rate being 4.25%.
They’ve also been enjoying a profit surge this year. On 3 May, Lloyds reported £2.3bn profits for Q1 2023 – a 46% increase on the previous quarter. On 28 April, Natwest reported £1.9bn profits for Q1 2023 – a 50% increase on the previous quarter. NatWest said its net interest income – which accounts for the difference between what it pays savers and what it charges to borrowers – jumped 43% to £2.9bn in the first quarter. These are just two examples – the figures from HSBC and Barclays are also eye-watering.
In fact, Nationwide – a building society – even announced last month it would pay £340m directly into customer accounts for the first time, after a jump in deposits and higher interest rates drove annual profits up 40% to £2.2bn. The payout is worth about 15% of its annual profits.
But it’s a different story for ordinary homeowners. Already the cost of fixed-rate mortgages has risen, with a two-year fixed rate above 6% this week. When the Bank of England meets this Thursday, it’s expected to increase interest rates further. There are 1.5m or more households that are facing a massive increase in the cost of remortgaging. The fear is that this could lead to significant rises in repossessions and rent increases.
With bank profits continuing to soar, it’s surely time for action from the banks to shield households from the worst effects of this mortgage crisis. So what can be done?
The banks could voluntarily shoulder some of the burden of the rise in interest rates and take a form of haircut. This would mean that they accept that mortgagees are struggling to pay and cut their interest rates, covering the cost from their profits. But if the banks are not willing to act, the government should intervene and levy an excess profits tax on the sector.
If the UK’s big five banks were required to pay a windfall tax of 15% (equivalent to Nationwide’s customer payout), itt could fund a mortgage interest relief scheme of £5.5bn for 2022, and likely significantly higher in 2023. A 15% tax on Q1 2023 profits alone would be £3bn.
At this level, it would not relieve the full burden expected to result from the rate rises, but it would go some way to lift the pressure on households at a time of a cost of living crisis. For many people it could be the difference that saves them from repossession and losing their homes.
Support for mortgagees in difficult times is nothing new. Past governments introduced support through a mortgage tax relief scheme (Miras). In 1971, Miras cost the exchequer £302m – equivalent to £3.5bn today. In 2000 (its final year), its value was £1.4bn – equivalent to £2.5bn today.
Finally, renters must not be forgotten. Alongside mortgage support, it’s long overdue that the mayors of our big cities are given the power to control rents that they have been asking for. Landlords have seen their profits rise between 15% and 20% in recent years.
The time has come to act. Whichever way assistance can be provided it’s vital that action is taken soon, and reassurance is given to people that their homes are safe and that they will be able to afford their mortgage or rents. This will provide a breathing space needed to enable a comprehensive housing policy programme to be brought forward under Labour, with at its core a mass council housebuilding initiative.
John McDonnell is Labour MP for Hayes and Harlington and a former shadow chancellor
