Chancellor Jeremy Hunt’s deal with banks to offer more help for mortgage holders struggling with their payments has been dismissed as “weak” and a “sticking plaster for a gushing wound”.
Economists and mortgage brokers said the agreement with lenders did not go far enough – predicting that Rishi Sunak’s government would soon be forced to intervene by coming up with direct financial support for homeowners worst hit by soaring interest rates.
Senior Tory MPs also urged the government to go further and be “more generous”, telling The Independent that “panicking” backbenchers fear that the mortgage crisis will cost them their seats in a general election wipe-out.
But Mr Hunt insisted the plans agreed with banks on Friday to offer more flexibility over interest-only mortgage holidays would make a “big difference” to hard-pressed families.
It came as:
- Hunt revealed a 12-month repossession grace period and guaranteed credit scores will not be impacted by support
- Labour dismissed the package as “weak” and the Lib Dems dubbed it a “sticking plaster for a gushing wound”
- Mortgage brokers described the measures as “water pistol to put out a fire”
- Tory MPs said they will get the blame “unfairly” for the mortgage crisis and lose their seats
- Economists warned 1.2 million households will be made insolvent by mortgage hikes
Under pressure over the Bank of England’s decision to hike the base rate to 5 per cent, Mr Hunt announced a new charter with Britain’s biggest lenders to make temporary support easier to access after a crisis meeting at Downing Street on Friday morning.
The chancellor said borrowers would be given more flexibility to change their mortgage terms – whether to an interest-only deal or extending their term – then be able to switch back to their original deal within six months, with “no impact on your credit score”.
Mortgage holders struggling with repayments will be given a 12-month grace period before repossessions begin, rather than the three months requirement in place at the moment – though in practice most banks already offer far longer periods.
The Financial Conduct Authority (FCA) will oversee the changes. But Labour’s shadow chancellor Rachel Reeves – who attacked the package as “weak” – said the agreement appeared to be “voluntary” rather than a strict requirement.
Ms Reeves said: “The government’s failure to make this set of measures mandatory means around two million households will miss out on the mortgage support they need.”
Senior Tory MP David Davis told The Independent that getting the banks to offer as much help as possible to avoid repossessions was “sensible” – but said it essentially amounted to encouraging lenders to “do what they normally do for people anyway”.
The Liberal Democrats’ Treasury spokesperson, Sarah Olney, said it amounted to a “sticking plaster for a gushing wound”, having called for the government to set up a £3bn mortgage protection fund covering £300 a month.
Matthew Jackson, at mortgage broker Mint FS, said the measures were “like using a water pistol to put out a fire”, adding: “It will not do a thing to help, as lenders will set the criteria themselves to allow the client to move to interest-only and then amend future payments to catch up the shortfall.”
Mark Harris, chief executive of SPF Private Clients, questioned the duration of the switch to an interest-only mortgage. He said: “Is six months long enough? What’s going to change in six months’ time?”
Harriett Baldwin, Tory chair of the Treasury select committee, told the BBC mortgage holders should be shown the same “forbearance” by banks as they were during the Covid crisis in 2020 – when the government helped arrange a repayments holiday of up to six months.
Max Mosley, economist at the National Institute of Economic and Social Research (NIESC), said the government should be willing to take even more radical action and cover part of struggling mortgage holders’ repayments.
“The typical forbearance [offered by banks] may not be enough,” he told The Independent. “People say there are things the government can’t touch – but Covid showed us it is possible to intervene in mortgages.”
He added: “There’s only so much the banks can absorb, so there could be a period [when] the government will have to step in and provide liquidity to the banks to cover those temporary holidays or payment plans.”
The Resolution Foundation think tank has suggested the government expand its Support for Mortgage Interest (SMI) scheme – emergency loans given to cover interest payments for those on certain benefits.
One senior Tory MP also said the government would have to go further, suggesting “more generous” loans to cover mortgage interest payments for Universal Credit recipients. “What do we do for people who lose their job? We need to be more helpful,” they told The Independent.
“People blame us for interest rates going up, whether it’s fair or not. MPs are worried about losing their seats over this. This is the stuff that matters. We said we’d fix inflation and, six months on, it isn’t fixed.”
Mr Davis warned Tory MPs not to panic, arguing that more government support would be inflationary. “Colleagues are all panicking because they think they’ll get the blame for this,” he said. “They are feeling rattled at the moment. But the answer is not to spend more money on everything – we have to get off that loop.”
Senior Tory John Redwood told The Independent that measures pushing the banks to offer temporary respite was merely “fiddling at the edges – the interest rates are what they are”.
The ex-minister said the government could still help ease interest rates by telling the Bank of England to stop driving down bond prices as they continue to sell them. “The mortgage rates are very influenced by the bond rates,” he said.
It comes as senior Tories continued their war of words with the Bank of England, with Jacob Rees-Mogg calling governor Andrew Bailey “chief ostrich” with his head in the sand.
Senior MP John Baron said the Bank had been “asleep at the wheel” in tackling inflation. He told Times Radio on Friday that the central bank “should be pausing at the moment” to see the impact of recent rate hikes before considering any more.
It came as NIESR warned that 1.2 million households would be made insolvent this year as a direct result of higher mortgage payments. And the Centre for Business and Economic Research (CEBR) said that if the base rate hit 6 per cent – as predicted by markets – it would mean nearly 10,000 extra repossessions in the next three years.
Consumer champion Martin Lewis, who met with Mr Hunt earlier this week, said he was “pleased to see it looks like the chancellor has listened” on greater flexibility for struggling mortgage-holders.
But Mr Lewis has said it was “absolutely outrageous” that the rates Britons’ savers are sitting on are lagging behind the rates being charged to borrowers.