Jeremy Hunt urges lenders to help stricken mortgage-payers at Downing St summit after BoE hikes rates to 5%… but allowing people to switch to interest-only mortgages could end up costing them tens of thousands of pounds more
Jeremy Hunt is urging lenders to help stricken mortgage-payers at a Downing Street summit this morning.
The Chancellor has gathered senior executives for crisis talks after the Bank of England hiked interest rates to a fresh 15-year high of 5 per cent in a desperate effort to control inflation.
He is expected to tell them that customers who get into trouble due to rocketing costs of servicing debt should be given assistance without any fallout for their credit rating. Options include moving to interest-only mortgages, taking payment holidays or extending terms.
Mr Hunt will also challenge the banks over the growing gap between the rate they pay to savers and the rate they charge to borrowers.
However, the government has dismissed Tory calls to bail out home owners with tax breaks and other direct support, as it could fuel inflation.
And there are concerns that moves such as switching to interest-only mortgages will cause more damage later. The overall costs on a £150,000 25-year mortgage would be around £80,000 higher than on repayment term.
Jeremy Hunt is urging lenders to help stricken mortgage-payers at a Downing Street summit this morning
The average two-year fix mortgage rate has risen well above 6 per cent this week
The Bank of England surprised markets by increasing rates to 5 per cent yesterday
Today’s talks are a follow up to a meeting in December at which the banks agreed to make it easier for struggling customers, including measures such as extending the term of a mortgage or allowing temporary reductions in payments.
Financial expert Martin Lewis, who attended that meeting, said that ‘none of the suggestions have seen any real fruition’.
Mr Lewis, who held fresh talks on the issue with the Chancellor this week, said it was vital that people accessing mortgage help suffered only ‘minimal impact’ on their credit rating.
He added that the banks had ‘pushed back’ against the idea in December but said that without it people were ‘reticent to make a decision, which can lead to snowballing problems’.
Treasury sources confirmed the issue will be on the table at today’s summit, but warned that a deal would not necessarily be done.
However, one Conservative source said the idea could be a ‘game changer’ and that ‘all eyes are on this summit because the Treasury think they can get the banks over the line on the idea of allowing people to take capital payment holidays without triggering a negative credit report’.
The source added: ‘That would be a game changer for many families struggling with these crippling interest rates rises, because they could then just pay the interest for a time while they got their finances in order.’
High street banks have faced criticism for raising their lending rates much faster than their savings rates during the past year. Mr Lewis said this week: ‘That gap should be tightened and political pressure needs applying to ensure either better mortgages or better savings or best, both.’
A Treasury source confirmed that Mr Hunt would press the banks to raise their savings rate. He will argue that the move is fairer to customers and would help in the fight against inflation.
And he is also expected to warn them that any sign of profiteering from rising rates will leave them vulnerable to pressure from Labour for a windfall tax. He also hopes to use the meeting to secure better data on the impact of recent interest rate hikes on homeowners.
Shock figures this week showing inflation still not slowing down sparked the Bank of England pushing rates to 5 per cent
Repossessions and arrears remain below pre-pandemic levels but today’s meeting is likely to discuss the banks’ latest data and future projections. A Treasury source said: ‘The Chancellor will raise the discrepancy between the base rate, the mortgage rate and the savings rate. He is increasingly concerned about that and he will make the point that better savings rates are anti-inflationary because they make it more attractive to save money rather than spend it.’
Today’s meeting will be attended by all the major lenders, along with the Financial Conduct Authority.
Mr Hunt will hold a further summit with the UK’s major regulators next week to discuss ways to keep prices under control and squeeze more value for consumers.
The unprecedented meeting will involve the Competition and Markets Authority and those bodies governing utility sectors including energy, water, broadband and rail.
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