Struggling mortgage holders will be given a 12-month grace period before their repossession proceedings begin, in an agreement between Jeremy Hunt and Britain’s biggest lenders.
The chancellor held a meeting with Britain’s biggest banks and building societies on Friday to ask if they could do more to support households facing a sharp rise in monthly payments on their mortgages after the Bank of England intensified its battle to tame high inflation by increasing interest rates by half a percentage point to 5% on Thursday.
Hunt said three measures had been agreed, including that consumers’ credit scores would not be affected by discussions with their bank or mortgage lender, and that those agreeing to change the terms of their mortgage – by switching to interest-only payments or extending the life of the loan – could return to their original deal within the first six months.
He said that, for those who were “at risk of losing their home in that extreme situation”, a 12-month grace period would be introduced.
Ever-higher mortgage rates will leave Rishi Sunak feeling lowRead more
Hunt said: “There are two groups of people that we are particularly worried about. The first are people who are at real risk of losing their homes because they fall behind in their mortgage payments.
“The second are people who are having to change their mortgage because their fixed rate comes to an end, and they are worried about the impact on their family finances of higher mortgage rates.”
He continued: “If you are anxious about the impact on your family finances and you change your mortgage to interest only or you extend the term of your mortgage and you want to go back to your original mortgage deal, within six months, you can do so, no questions asked. No impact on your credit score.”
Among the attenders at the meeting were the chief executives of NatWest, Alison Rose; Lloyds, Charlie Nunn; Barclays UK, Matt Hammerstein; Virgin Money, David Duffy; Nationwide, Debbie Crosbie; and Santander UK, Mike Regnier. Nikhil Rathi, the head of the Financial Conduct Authority (FCA), the City regulator, also attended.
No 10 indicated that the help for mortgage holders would be limited to making it easier for them to get existing support, rather than any subsidies from government.
Rishi Sunak’s official spokesperson said: “We are doing a great deal to support mortgage holders already both on the macro scale and multibillions of pounds to help with energy bills and also specific products to help those that are struggling and the new FCA consumer duty which sets expectations on what lenders should be doing.”
Mortgage graphic
Pressed on whether direct support had been ruled out, the spokesperson said: “The PM was clear that we are not looking to make any fiscal interventions in this space.”
Rose said: “We had a very productive meeting. We are doing everything we can to help customers and help with the anxieties.” She added that banks were “very keen” to help everyone.
Nunn said that bosses had held a “good working discussion with the chancellor”.
A senior industry figure with knowledge of the meeting told the Guardian: “Discussions fed more into how we communicate what we already offer customers in hardship rather than changing commitments we have in place for those who are struggling.”
Opposition parties said the measures were not enough to tackle the crisis, which was turbocharged by the former prime minister Liz Truss’s disastrous mini-budget.
skip past newsletter promotion
Sign up to Business Today
Free daily newsletter
Get set for the working day – we’ll point you to all the business news and analysis you need every morning
Enter your email address Enter your email address Sign upPrivacy Notice: Newsletters may contain info about charities, online ads, and content funded by outside parties. For more information see our Privacy Policy. We use Google reCaptcha to protect our website and the Google Privacy Policy and Terms of Service apply.
after newsletter promotion
The Liberal Democrat Treasury spokesperson, Sarah Olney, said: “This is a sticking plaster for a gushing wound. Even after today, bailiffs will still be knocking on people’s doors because the government refused to help. Struggling families still face the looming prospect of losing their homes because the government crashed the economy and sent mortgage bills spiralling.”
‘Shock and awe’ interest rate rise leaves Sunak’s cost of living pledge in tattersRead more
Rachel Reeves, the shadow chancellor, said: “Today’s weak response from the government on a mortgage crisis they created shows just how little they understand what families are facing.
“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.”
The Bank of England has increased interest rates on 13 consecutive occasions since December 2021 in an attempt to calm stubbornly high inflation. Official figures released on Wednesday showed annual inflation remained unchanged in May at 8.7%, well above the Bank’s target of 2%. Economists had predicted a fall in inflation to 8.4%.
On Thursday, the Bank raised its benchmark rate to a 15-year high of 5%, and financial markets are now predicting it will hit 6% by the end of the year, and remain at that level until next summer.
On Friday, the average two-year fixed residential mortgage rate remained unchanged on the previous day, at 6.19%, after recent rises, while the average five-year fixed rate edged up to 5.83% from 5.82% on Thursday, according to Moneyfacts.
No 10 also came under pressure over its position on pay rises, after the Bank’s governor, Andrew Bailey, said the UK could not “continue to have the current level of wage increases”.
Sunak’s spokesperson said there would be no government action on private sector pay and would not advise “individuals on how to act” on pay rises. They added: “We are not looking to intervene in private companies and their wage setting. For our part, we will retain fiscal discipline when it comes to public sector pay.”
