Banks Agree to Offer More Help to Struggling Mortgage Holders

A Union Flag flies from HMS Belfast moored on the River Thames in the shadow of the office buildings of the City of London, in London, on Nov. 1, 2020. Justin Tallis/AFP via Getty Images

Banks and building societies will offer more flexibility to mortgage holders struggling with high interest rates, Chancellor Jeremy Hunt has said after a meeting with major lenders in Downing Street.

Top executives of banks and building societies were summoned to Downing Street on Friday to discuss ways to help mortgage holders following 13 consecutive interest rate rises in 18 months.

The Bank of England on Thursday raised interest rates from 4.5 to 5 percent, a level last seen in April 2008, putting further pressure on mortgage holders.

Terraced houses in southeast London on Jan. 13, 2023. Daniel Leal/AFP via Getty Images

According to estimates by the Resolution Foundation, average household re-mortgaging would cost an extra £2,900 next year. The Institute for Fiscal Studies warned on June 21 that 1.4 million people could lose 20 percent of their disposable income to rising mortgage payments.

Following Friday’s meeting with bosses of HSBC, Santander, and Barclays, among others, Hunt said he had made some “important” agreements with banks and lenders.

More Flexibility

Speaking to broadcasters, the chancellor said that the government is 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 the lenders 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, with “no questions asked, no impact on your credit score.”

Chancellor of the Exchequer Jeremy Hunt speaking during the British Chambers Commerce Annual Global conference, at the QEII Centre, London, on May 17, 2023. Jordan Pettitt/PA Media

“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.

The lenders will also offer 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.

Mortgage Intervention Ruled Out

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

But Prime Minister Rishi Sunak and the chancellor have both ruled out a financial intervention, fearing it could further fuel inflation.

Hunt stressed on Friday that tackling stubbornly high inflation is the “number one priority,” and ministers must 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.”

‘Weak Response’

Commenting on the Downing Street meeting, Labour’s shadow chancellor Rachel Reeves 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.

“Instead of shrugging their shoulders, the Tories should be taking responsibility and acting now.”

She said Labour’s five-point plan “offers practical help now” and its “commitment to fiscal responsibility and growth will secure our economy for the future.”

Under Labour’s five-point plan, banks would have to wait for at least six months before starting repossession proceedings, and they’ll have to allow any changes to be reversible, unlike under the current situation where borrowers can be trapped in less-favourable terms.

The financial regulator would also be told to issue guidance, telling banks that borrowers’ who ask for help won’t have their credit scores affected.

But Tom Clougherty, research director of think tank the Centre for Policy Studies, told the BBC that Labour’s plan “mostly ‘requires’ lenders to do a variety of things they will already be doing voluntarily,” and that forcing them to do more will increase costs for borrowers and “cause as many problems as it solves.”

Lily Zhou and PA Media contributed to this report.