Labour would force banks to help struggling borrowers to diffuse ‘mortgage bomb’
Chancellor Jeremy Hunt was accused by his Labour shadow Rachel Reeves of ‘standing by’ as millions struggle.
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Your support makes all the difference.Banks would be forced to help mortgage holders struggling with payments under Labour plans to calm the crisis being set out, as rates are expected to be hiked again.
Labour accused Chancellor Jeremy Hunt of standing by as millions suffer by taking the softer approach of just asking lenders to go further in supporting struggling borrowers.
The Opposition is urging the Government to instead compel lenders to allow borrowers to temporarily switch to interest-only payments or lengthen their mortgage period.
Banks would also have to wait at least six months before starting repossession proceedings under a five-point plan set out by shadow chancellor Rachel Reeves on Thursday.
Instead of squabbling over peerages and parties and ruling out any action on mortgages, the Tories should be taking responsibility and acting now
She will detail the strategy as the Bank of England is expected to raise the base interest rate by at least 0.25 points to 4.75%, leading to another hike for many mortgage payers.
Ms Reeves said: “Across Britain, people are being hit hard by a Tory mortgage penalty.
“Unlike this Government, Labour will not stand by as millions face a mortgage catastrophe made in Downing Street.
“Instead of squabbling over peerages and parties and ruling out any action on mortgages, the Tories should be taking responsibility and acting now.”
Annual mortgage repayments are set to rise by £2,900 for the average household remortgaging next year, according to economists at the Resolution Foundation.
With those on variable rate mortgages also being hit, Labour argues the “gap” in rates with neighbouring countries is leaving typical households in Britain £1,000 worse off.
Under their plans for an initial 12 months, the Financial Conduct Authority (FCA) would also be told to issue guidance to prevent the changes impact credit scores.
Lenders would also be forced to allow any changes to be reversible, unlike under the current situation where borrowers can be trapped in less favourable terms.
Options such as extending a mortgage term can ease homeowners’ monthly payments in the short-term.
But they could also hit retirement plans or leave borrowers paying the lender more in interest over the course of the mortgage.
Labour said they could achieve the changes through working with the FCA rather than introducing new legislation.
Meanwhile, Liberal Democrat leader Sir Ed Davey urged ministers to act now to prevent a “tidal wave” of home repossessions with an emergency mortgage protection fund paid for by a reversal of tax cuts for big banks.
Lasting for a year, it would provide targeted support in the form of grants of up to £300 a month to homeowners on the lowest incomes and those suffering from the sharpest rises in rates.
Concerned about further fuelling inflation, Mr Hunt was resisting calls from some Conservatives to offer major financial support to defuse a “mortgage bomb” hitting core voters.
Instead he will meet lenders on Friday to ask what help they can give to struggling borrowers and see what flexibilities they can offer to those in arrears.
If we are going to help families, if we are going to relieve the pressure on people with mortgages, on businesses, we need to squeeze every last drop of high inflation out of the economy
But Downing Street made clear the Chancellor will not be forcing lenders to take action.
The Prime Minister’s official spokesman said: “We’re not seeking to intervene in commercial decisions for banks offering mortgages.
“We want banks to be offering the best possible products to consumers, that’s in everyone’s interest. And so we will be looking to dig into what more they can be doing in this space.”
The Consumer Prices Index (CPI) measure of inflation remained at 8.7% in May, the same level as in April, in a blow to the Government’s pledge to halve the rate of soaring prices.
Some analysts believe the Bank could take the more aggressive step of hiking the base rate by 0.5 points on Thursday in an attempt to cool stubborn inflation.
Reacting to Wednesday’s disappointing inflation announcement, Mr Hunt told broadcasters: “Today’s figures strengthen the case for the Government to stick to its guns.
“No matter what the pressure from left, right or centre, we won’t be pushed off course.
“Because if we are going to help families, if we are going to relieve the pressure on people with mortgages, on businesses, we need to squeeze every last drop of high inflation out of the economy.”
The Conservatives said they had “taken immediate action to support families and to make the mortgage market more flexible”.
“Putting the economy back on the right track is our priority and that is why we committed to halve inflation by the end of the year,” a spokesman said.
“Labour cannot be trusted to take the difficult action necessary, they are always out for easy answers, that is why all they propose are the same old Labour ideas of more spending and borrowing that will increase the rate of inflation and interest rates.”
An FCA spokesman said the authority had been working with lenders for “many moths” to ensure they provide “tailored support to those facing rate rises or who may find themselves in financial difficulty”.
“This includes guiding firms to offer borrowers in difficulty a range of options including temporary payment reductions, term extensions and, where appropriate, switching to an interest-only mortgage.
“Firms must also explain the impact of these options both now and over the longer term,” he added.
“Anyone struggling to meet their mortgage payments should speak to their lender.”
A Treasury spokesperson said: “We know this is a concerning time for mortgage holders. Lenders are already required to engage individually with their customers who are struggling to provide support that is tailored to their circumstances.
“Support could include extending a person’s mortgage term to reduce monthly payments, offering a switch to interest only payments, payment deferrals, rate discounts, or part interest-part repayment.”