Mortgage Lenders Relax Terms After Hunt Meeting

Government again rules out direct intervention in the mortgage market after the Bank raised borrowing rates to 5% yesterday

Alliance News 23 June, 2023 | 3:28PM
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Banking executives in Downing Street

Chancellor Jeremy Hunt has agreed measures with lenders aimed at helping mortgage holders struggling with high interest rates, but has resisted offering government support.

After summoning banks and building societies to Downing Street to help quell the crisis on Friday, Hunt said they agreed to implementing a 12-month minimum before repossessing homes.

He also said the lenders agreed to allow struggling borrowers to extend the term of their mortgages or move to an interest-only plan temporarily, "no questions asked".

Hunt met with the bosses of HSBC, Banco Santander and Barclays among others after a shock interest rate hike threatened further pain for struggling households.

Speaking to broadcasters, Hunt said that they are most concerned about families who could lose their homes and those whose payments could soar as their fixed-term rates come to an end.

He said they agreed to give more flexibility to those "anxious" about their finances by letting them switch to interest-only payments or extend the length of their mortgages before reverting to the original terms within six months "no questions asked, no impact on your credit score".

"That, I think, is going to give people a lot of comfort and stop people worrying about having conversations with their banks when they are worried about their financial situation," he said.

There will also be more leeway for those facing losing their homes.

"The last thing that they want to do is to repossess a home, but in that extreme situation they have agreed there will be a minimum 12-month period before there's a repossession without consent," Hunt said.

The chancellor stressed that tackling stubbornly high inflation, which measures the rate of rising prices and is behind the Bank of England's repeated hiking of interest rates, is the "number one priority".

But he was resisting giving into calls from some Tory backbenchers to offer a major support package to mortgage holders, fearing it could further fuel inflation.

He said ministers must instead be "totally resolved and unflinching" in cooling prices.

NatWest chief executive Alison Rose said it had been a "very productive meeting" as she left Downing Street.

"We're doing everything we can to help customers and help with the anxieties," she said.

Chief executive of Lloyds Banking Group Charlie Nunn said that bosses had held a "good working discussion with the chancellor".

With bosses arriving from around 7.30am, attendees also included Barclays UK chief executive Matt Hammerstein, Virgin Money UK boss David Duffy, and Nationwide chief executive Debbie Crosbie.

Inflation Rampant

The meeting came a day after the Bank of England issued its 13th interest rate hike in a row, this time by half a percentage point from 4.5% to 5% in the sharpest increase since February.

Surprising economists who had been expecting a smaller hike of 0.25 percentage points, the move brought rates to the highest level in nearly 15 years.

The move was an attempt to reduce inflation, which measures the rate of rising prices, which remained at 8.7% in May despite efforts to bring it down.

Prime minister Rishi Sunak and Hunt have ruled out a financial intervention as rates were hiked as the Bank of England tries to bring down stubbornly high inflation.

Labour has called for banks to be compelled to help struggling mortgage holders in a tougher response, while some backbench Tories have demanded support for under-pressure borrowers.

Keir Starmer and his shadow chancellor Rachel Reeves are urging ministers to order banks to offer further support, such as temporarily allowing struggling borrowers to switch to interest-only payments or lengthen their mortgage period.

Financial markets are predicting that interest rates will strike a high of 6% by the end of the year.

There have been warnings that 1.4 million mortgage holders will lose at least a fifth of their disposable income in additional repayments.

They are set to rise by £2,900 for the average household remortgaging next year, according to economists at the Resolution Foundation.

More than 80% of homeowners with a mortgage are on fixed-rate deals, according to trade association UK Finance.

However, around 2.4 million fixed-rate mortgage deals are due to end before the end of 2024, with some potentially heading for a bill shock.


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