LONDON: Britain on Friday (Jun 24) unveiled help for millions of cash-strapped homeowners facing soaring mortgage costs in a cost-of-living crisis, after the Bank of England unexpectedly hiked interest rates to a new 15-year peak.
Finance minister Jeremy Hunt said he had agreed a “mortgage charter” with top UK lenders for struggling customers, including those in arrears.
But he stopped short of offering direct support, angering political opponents.
The measures, announced follow a meeting with bank chiefs and the Financial Conduct Authority (FCA) watchdog, include mortgage holidays to give payment flexibility and a 12-month minimum period before repossessing homes.
Borrowers will also be able to extend the term of mortgages – or switch to an interest-only plan that does not repay capital on a temporary basis – before reverting to their original loan contract within six months, with no impact on their credit score.
Hunt said the Treasury was “particularly worried” about people “at real risk” of losing their homes because they fall behind in their mortgage repayments.
Those who have to change their mortgage because their fixed rate is coming to an end – and whose outgoings will go up – are also causing concern, he added.
“These measures should offer comfort to those who are anxious about high interest rates and support for those who do get into difficulty,” said Hunt.
The Bank of England on Thursday lifted its key rate by a half-point to 5 per cent in the 13th increase in a row, driving up the cost of home loans from commercial lenders and pressuring Britons already buckling under surging food and fuel prices.
The BoE is seeking to tackle stubbornly high inflation but has sparked fresh mortgage misery, with Britons increasingly at risk of falling into arrears.
The mortgage crisis has also piled pressure on Prime Minister Rishi Sunak, as his Conservatives attempt to win back ground from the main opposition Labour party before next year’s general election.
Official data this week showed UK annual inflation at 8.7 per cent in May, unchanged from April, causing the BoE to hike by a larger than expected amount.
Economists are predicting rates could hit six percent this year, which could see the UK follow the eurozone into recession.
Sunak has vowed to halve Britain’s inflation rate by the end of the year but it remains one of the highest in the G7.
“Tackling high inflation is the prime minister and my number-one priority,” added Hunt.
“We are absolutely committed to supporting the BoE to do what it takes. We know the pressure that families are feeling.”
Labour finance spokeswoman Rachel Reeves blasted the measures as a “weak response on a mortgage crisis they created”.
“Instead of shrugging their shoulders, the Tories should be taking responsibility and acting now,” she added on Friday.
Consumer champion Martin Lewis, who met Hunt earlier this week and warned that the “ticking time bomb” of mortgages was now “exploding”, said he was “pleased to see it looks like the Chancellor has listened” to his concerns.
Markets are predicting a further rise in the BoE’s key interest rate – which is used to set commercial mortgage rates – to 6 per cent by year-end.
UK banks mostly offer mortgages with a fixed interest rate for a set period – typically two to five years – but after expiry this becomes variable or a new rate is set in line with prevailing market conditions.
Some 1.4 million mortgage holders whose deals are expiring now face losing at least a fifth of their disposable income in additional payments.
They are set to rise by £2,900 (us$3,681) for the average household remortgaging next year, according to economists at the Resolution Foundation think-tank.
More than 80 per cent of homeowners with a mortgage are on fixed-rate deals, according to trade body UK Finance.
But some 2.4 million of those deals are to expire before the end of 2024.