MORTGAGE CRISIS: HUNT EASES PAIN
Chancellor secures new charter from banks to help households struggling to pay soaring bills
JEREMY Hunt yesterday struck a deal with banks to help families hit by surging mortgage repayments.
Lenders signed up to a charter letting households extend the length of their loan or move to an interest-only plan for six months.
Those threatened by repossession will be granted a minimum 12 months of grace from their first missed payment
The talks at Downing Street followed shock inflation figures that led to a sharp interest rate hike on Thursday. It is hoped the voluntary measures, which were approved by high street giants including HSBC and Barclays, will be adopted by smaller lenders.
The Chancellor raised concerns that banks were not passing better interest rates on to savers – with agreement to come back to this issue at a later date.
Mr Hunt resisted calls from some Tory backbenchers to offer a major support package to mortgage holders, fearing it could further fuel inflation. He said he was ‘particularly worried’ about families at real risk of losing their homes because of repayment problems.
But he insisted that he and Rishi Sunak were absolutely committed to supporting the Bank of England over interest rates. And he added: ‘We won’t flinch in our resolve because we know that getting rid of high inflation from our economy is the only way we can ultimately relieve pressure on family finances and on businesses.’
Yesterday’s deal means more homeowners will be able to lock in a new mortgage deal up to six months ahead of their existing loan expiring.
Martin Lewis of MoneySavingExpert welcomed the measures: ‘The important
thing we can focus on right now is appropriate, flexible forbearance measures.
‘While the Bank of England’s aim is intended to squeeze people’s disposable incomes, no one wants people’s lives to be ruined by arrears and repossessions – and that is the urgent protection we need to focus on.
‘I met the Chancellor on Wednesday and reiterated that the minimum we needed was to ensure that when people asked for help from lenders, they knew that if things changed, it wouldn’t be detrimental to their financial situation and their credit scores would be protected as much as possible. I’m pleased to see it looks like the Chancellor has listened and those measures are going to be put in practice by the banks.’
Nikhil Rathi of the Financial Conduct Authority said the meeting would ‘ensure those who get into difficulty receive the tailored support they need’. The chief executive added: ‘We’ll move quickly to make any changes needed to support today’s commitments.’
Laura Suter, head of personal finance at AJ Bell, said: ‘The Government is balancing on a wafer-thin tightrope – if it offers too much help to homeowners that could undermine attempts to tame inflation through increased borrowing costs, but if it does nothing it looks heartless as some people face losing their homes. With the backdrop of a looming general election the Government is under huge pressure to fix the economy without alienating voters.
‘This deal with mortgage companies strikes a middle ground – it offers some support to those homeowners hardest hit, but not so much that it should boost inflation.’
Alice Haine, personal finance analyst at investment platform Bestinvest, said protecting struggling mortgage borrowers from having their properties repossessed in the short term might ‘offer some relief to those fearful of what the future holds’. But she added: ‘It is unlikely to stem the tidal wave of worry flooding over Britain’s homeowners right now. ‘Whether it is a first-time buyer trying to get a foot on the property ladder or someone remortgaging in the next 12 months, or even in three years’ time, mortgage costs are top of the financial concern list for many.’
But Labour branded the Government’s response ‘weak’, and said it showed ‘just how little they understand what families are facing’.
Shadow Chancellor Rachel Reeves said: ‘Questions remain on how voluntary these measures are. The Government must offer clarity and confidence to homeowners by putting in place requirements now to reassure households. Labour’s five-point plan to ease the Tory mortgage penalty offers practical help now, while our commitment to fiscal responsibility and growth will secure our economy for the future.
‘Instead of shrugging their shoulders, the Tories should be taking responsibility and acting now.’
Bank of England governor Andrew Bailey has faced intense criticism this week for failing to respond to inflation earlier, with some Treasury advisers arguing that it now had no
‘Should be taking responsibility’
option but to force a recession. The Capital Economics consulttancy said that while ‘some of the criticism is unhelpful and harsh, we do think the Bank should have talked tough right from the start of the hiking cycle rather than being consistently dovish’. It added: ‘If it had, then perhaps a recession wouldn’t be needed to break the back of inflation. But that’s the situation we find ourselves in now.’
Financial markets are predicting that the Bank’s base rate will reach a high of 6 per cent by the end of the year, with some traders yesterday betting it could even rise to 6.25 per cent in February.
There have been warnings that 1.4million mortgage holders will lose at least a fifth of their disposable income in additional repayments.
They are set to rise by £2,900 for the average household remortgaging next year, according to economists at the Resolution Foundation.
More than 80 per cent of homeowners with a mortgage are on fixed-rate deals, according to the trade association UK Finance. And around 2.4million fixed-rate loans are due to terminate before the end of 2024, with some families potentially heading for a bill shock.
Mortgage arrears and defaults, however, remain below pre-pandemic levels, according to the latest market indicators. The Financial Conduct Authority reported that 0.86 per cent of residential mortgage balances were in arrears in the first quarter of this year – well below the 3.32 per cent rate in 2009.
Figures also suggest the proportion
of disposable income spent on mortgage payments sits at 5.4 per cent, compared with 10 per cent in the 1990s. And the average homeowner remortgaging over the past 12 months had around a 50 per cent loan-tovalue ratio, showing they have considerable equity in their homes.
Only 10 per cent of owner-occupier mortgages on lenders’ books have a loan-to-value rate greater than 75 per cent.
The figure stood at around 25 per cent before the 2008 financial crisis.