Chancellor Jeremy Hunt is meeting bank leaders in Downing Street to address the growing mortgage crisis caused by rising interest rates.
Hunt is urging banks and building societies to examine the state of the mortgage market and see what additional help they can give those struggling to deal with surging monthly payments on their home loans.
Attendees at the breakfast on Friday include Nikhil Rathi, head of the Financial Conduct Authority, as well as chief executives Charlie Nunn of Lloyds, Debbie Crosbie of Nationwide, Alison Rose of NatWest, David Duffy of Virgin Money and Mike Regnier of Santander UK.
The Bank of England’s Monetary Policy Committee voted on Thursday to increase rates by 0.5 points to 5 per cent — the highest level for 15 years — with expectations that the figure could rise to 6 per cent by the end of 2023.
Many borrowers coming off variable mortgage rates or having to replace their fixed-rate mortgages are being offered two-year fixed deals over 6 per cent, resulting in big jumps in their monthly repayments. Andrew Bailey, BoE governor, admitted on Thursday that the 13th consecutive rise in rates since December 2021 would cause “difficulty and pain” for many.
Yet Hunt has ruled out calls for a return of mortgage interest relief, which was known as MIRAS.
The chancellor has also rejected the idea of giving fiscal support to households struggling with the rising cost of mortgages, arguing that the government’s priority is to “strangle” inflation, which has remained stubbornly high.
The Liberal Democrats have called for a new multibillion-pound support scheme for vulnerable householders, but Hunt believes that pumping more money into the economy will put further upward pressure on inflation and interest rates.
Instead, the chancellor is encouraging lenders to show forbearance to struggling customers, including offering mortgage term extensions or letting borrowers switch to interest-only repayment holidays.
Under a December 2022 agreement between banks, regulators and the Treasury, lenders are required to offer tailored support to those struggling to pay their mortgages.
A senior executive at a major lender said that the conversations were a “restatement of commitment but nothing dramatic” as lenders already have sufficient forbearance measures in place.
“We think there’ll be an opportunity to work with others to give borrowers confidence,” he added, suggesting that customers might be more willing to get in touch with independent debt charities than their own lenders if they are facing difficulties.
The problem of rising mortgage rates is prompting concern among Conservative MPs that the issue could cost them the general election, expected next year. Sir Jake Berry, a former Tory minister, said this week there was a “mortgage bomb about to go off”.
Yet Treasury officials have taken some comfort from data showing home repossessions and arrears on mortgage payments are below pre-pandemic levels. Andrew Griffith, Treasury minister, told the Telegraph that arrears were still “almost as low as (they have) ever been”.
Prime Minister Rishi Sunak admitted on Thursday that his pledge to halve inflation by the end of 2023 to about 5.5 per cent had “got harder”, but insisted: “It’s going to be OK.”
Additional reporting by Siddharth Venkataramakrishnan