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UK mortgage holders to get 12-month grace period before repossessions
Mortgage lenders and the UK chancellor, Jeremy Hunt, have agreed that people should be given a 12-month grace period before repossession proceedings start, following yesterday’s shock interest rate hike to 5%. You can watch him talk here on Sky News. He told broadcasters:
There will be a minimum 12-month period before there is a repossession without consent.
The chancellor met with the heads of financial institutions this morning, including Lloyds Banking Group, NatWest Group, Barclays and Virgin Money.
They agreed that the repossession break should be introduced.
Banks and Hunt also agreed that people can go to their mortgage lenders and talk about their options if they are struggling with repayments, without it having an impact on their credit rating.
People who extend their repayment term or go on to interest-only plans can reverse this within six months without it impacting their credit rating.
But there was no announcement of support for tenants, despite soaring rents.
Key events
Here are Jeremy Hunt’s comments in full, following his meeting with mortgage lenders. He told broadcasters:
Absolutely anyone can talk to their bank or their mortgage lender, and it will have no impact whatsoever on their credit score. That’s really important. A lot of people worry about that.
The second is that 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, and it’s 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.
And the final thing is for people who are at risk of losing their home: In that extreme situation, the banks and mortgage lenders have a number of things in place. The last thing that they want to do to repossess a home but in that extreme situation, they’ve agreed there will be a minimum 12 month period before there’s a repossession without consent.
UK mortgage holders to get 12-month grace period before repossessions
Mortgage lenders and the UK chancellor, Jeremy Hunt, have agreed that people should be given a 12-month grace period before repossession proceedings start, following yesterday’s shock interest rate hike to 5%. You can watch him talk here on Sky News. He told broadcasters:
There will be a minimum 12-month period before there is a repossession without consent.
The chancellor met with the heads of financial institutions this morning, including Lloyds Banking Group, NatWest Group, Barclays and Virgin Money.
They agreed that the repossession break should be introduced.
Banks and Hunt also agreed that people can go to their mortgage lenders and talk about their options if they are struggling with repayments, without it having an impact on their credit rating.
People who extend their repayment term or go on to interest-only plans can reverse this within six months without it impacting their credit rating.
But there was no announcement of support for tenants, despite soaring rents.
Rowena Mason
The UK government has indicated that the help for mortgage holders will be limited to making it easier for them to get existing support, rather than any subsidies, our Whitehall editor, Rowena Mason, reports.
Rishi Sunak’s official spokesman said:
We are doing a great deal to support mortgage holders already both on the macro scale and multi billions of pounds to help with energy bills and also specific products to help those that are struggling and the new FCA [Financial Conduct Authority] consumer duty which sets expectations on what lenders should be doing.
Pressed on whether direct support had been ruled out, the spokesman said:
The PM was clear that we are not looking to make any fiscal interventions in this space.
Asked whether banks should do more to publicise support to people, he said:
It’s important the public understand the support available to them.
We want lenders to do whatever they can to help hard hit mortgage holders and others.
Rosanna Bryant, a partner at the law firm Addleshaw Goddard, said:
The chancellor will want to see from the lenders that they will continue to support customers including those in financial difficulty.
Banks and other mortgage lenders will need to continue to ensure that borrowers are supported in the most appropriate way possible by putting their customers’ needs first.
This latest increase to the Bank rate by 0.5 percentage points to 5% will inevitably lead to increased weakening of UK households’ resilience and a coordinated effort must be made to support as many households as possible.
Keir Starmer: public wants ‘action, not words’
Sir Keir Starmer has said the public is looking for “action, not words” from ministers to help tackle the mortgage crisis.
The Labour leader, speaking to broadcasters at RAF Brize Norton in Oxfordshire, said there are “many mortgage holders, many families, across the country who are now even more worried about paying their mortgage”.
He added:
They know that the government’s been about for 13 years, they know the government crashed the economy last year.
What they want, I think, is a much stronger sense that the government is gripping this; action, not words.
Starmer said the government has to “take responsibility for the situation we find ourselves in” and that people do not want an administration that says “there is nothing we can really do about” the situation.
The opposition leader pointed to the Labour suggestion that lenders should be forced to allow borrowers to temporarily switch to interest-only payments or lengthen their mortgage period – an idea that the government has resisted.
He said ministers should “require lenders to take the steps” when it comes to mortgage holders that would “put in proper measures to shield them or support them”.
Looks like there won’t be any new help for struggling mortgage holders, such as more flexibility, for example by extending mortgage terms (but allowing customers to reduce terms again when their circumstances improve).
A senior industry figure with knowledge of today’s meeting between Jeremy Hunt and bank bosses 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.
Our full story is here:
Harriett Baldwin, a Tory MP who chairs the Treasury select committee, also said earlier this morning that banks were far too slow to pass on increases in the Bank of England base rate to savers.
We’ve all noticed that the day the Bank of England raises rates you get a message from your mortgage lender saying this has happened and it takes immediate effect on your mortgage if you’re on a variable rate, but they’ve been incredibly slow to pass on the increase to their loyal savers, particularly those savers who don’t feel comfortable shopping around.
I don’t think the high street banks have done nearly enough. They’ve taken it for granted that we’ve got used to not earning anything on savings.
Martin Lewis criticises ‘outrageous’ lag in savings rates
Consumer champion Martin Lewis has said it seems “absolutely outrageous” that bank savings rates are lagging behind the rates being charged to borrowers – and that the chancellor won’t provide much help to mortgage holders, because that would be “counter-productive” in the fight against inflation.
Speaking on ITV’s Good Morning Britain about the impact of interest rate hikes on mortgage holders, he said:
None of this is accidental. The fact that mortgage borrowers are paying a lot more is the policy.
Nobody needs to be under any uncertain terms that the idea that mortgage borrowers are being squeezed and their incomes are reducing is not an accidental by-product.
It is absolutely deliberately why interest rates go up. Interest rates are put up to try and take money out of the economy, so you put borrowing rates up so that borrowers have less money, and you want savings rates to go up so that people save more and they don’t spend more. That’s the theory behind this.
He added:
What that means is the chancellor is not going to call for help and more money to people who have mortgages. Because that would, if you’re following the theory, be counter-productive.
Lewis, who spoke to the chancellor earlier this week, said he had suggested lenders should be stopped from increasing their profits on the back of interest rates going up.
They should be doing what they can in return, because they’re too big to fail and, now, they don’t want us to fail. They should be doing what they can in return.
So to be increasing profits, increasing margins at this point seems absolutely wrong. It’s profiteering.
If I were the chancellor, and what I said to the chancellor obviously is, I think you need to make sure that they put savings rates up at least with the same rate as borrowing.
Because if you do that, you take money out of the economy and that’s another way of helping inflation that’s less painful than putting lending up.
But also they need to put money aside to help with forbearance. Because even if the idea is we want to, not me, as a state, we want to squeeze borrowers ’til the pips come out so that they haven’t got that much disposable income, then what you don’t want is people defaulting or going into arrears or being repossessed.
NatWest boss: Meeting with Hunt ‘very productive’
Following the bank bosses’ breakfast meeting with the UK chancellor, Jeremy Hunt, at Downing Street, Alison Rose, chief executive of NatWest Group, said:
We had a very productive meeting. We’re doing everything we can to help customers and help with the anxieties.
She added they were “very keen” to help everyone.
The chief executive of Lloyds Banking Group, Charlie Nunn, said there had been a “good working discussion with the chancellor” on supporting struggling households, following the latest rise in interest rates.
He said an announcement would be made by the chancellor later today.
UK economy slows, inflation pressures stay high – PMI
Britain’s economy slowed this month and inflation pressures stayed high, according to the latest snapshot from S&P Global and the Chartered Institute of Procurement & Supply (CIPS).
Growth in the UK’s private sector – manufacturers and service sector firms – has eased to its slowest level for three months. The closely-followed UK purchasing managers’ index, the flash reading, fell to 52.8 in June from 54 in May.
This was a sharper slowdown than expected, with economists forecasting a figure of 53.7 for the month. Any reading above 50 shows the sector is growing.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said:
June’s flash PMI survey indicates that the UK economy has lost momentum again after a brief growth spurt in the spring, and looks set to weaken further in the months ahead.
Most notably, consumer spending on services, which was a core growth driver in the spring, is now showing signs of faltering as the reality of higher interest rates, the increased cost of living and gloom about the outlook sets in and overrides the brief boost to spending enjoyed from the pandemic tailwind. The manufacturing sector meanwhile continues to report recessionary conditions.
Services firms put up their prices sharply again this month, although by a bit less than in May, while manufacturers cut the prices they charged for the first time in more than seven years.
Williams said:
One notable area of resilience in the economy is the labour market, with jobs growth accelerating in June as companies in the service sector continue to fill vacancies. While falling backlogs of work suggest this hiring trend could also fade in the coming months as the economy weakens, for now it is generating higher wage growth, in turn feeding through to still-elevated inflation pressures in the service sector.
Richard Donnell, executive director of property website Zoopla, said on Twitter:
Cant see much changing here other than commitment to forbearance and use of interest only for worst impacted households – these just kick the can down the road for those whose circumstances have changed – case by case rather than national schemehttps://t.co/svjLtr6O4T
— richard donnell (@richard_donnell) June 23, 2023
Food poverty campaigner: ‘fish and chips without peas’
This morning, Kathleen Kerridge, who campaigns against food poverty, was on BBC radio 4’s Today programme, talking about the impact of the rising cost of living on people – “it’s a gradual stripping back” until there’s nothing left to cut.
She said people are cutting back on luxuries like:
side dishes on dinner plates, like for example, if you have fish chips and peas, you might end up with just fish and chips; smellies, luxury items, such as branded cleaners and branded foods even, and you tend to go to supermarket brands and then budget brands. It’s a gradual stripping back. At first it is so incremental that you don’t really notice it and you feel like there’s nowhere else to go, and there’s nothing else that you can do.
Tom Pollard, head of social policy at the New Economics Foundation think tank, tweeted:
We’ve all felt the pinch of rising energy & food prices but it’s been widely recognised that low income households are suffering the most
I fear the brewing mortgage crisis could be more divisive, sapping attention & empathy from the plight of those in the toughest circumstances
— Tom Pollard (@PollardTom) June 23, 2023
Joseph Elliott, analysis manager of the Joseph Rowntree Foundation, tweeted:
Kathleen Kerridge, anti food poverty campaigner, on today programme:
“People are cutting back on luxury items and non-essentials.. [luxuries like] side dishes on dinner plates (no peas with fish and chips) branded cleaning products and foods..”
— Joseph Elliott (@J_Elliott94) June 23, 2023
Jeremy Hunt’s meeting with the heads of the UK’s main mortgage lenders is over. NatWest Group’s chief executive Alison Rose and the head of the banking industry body UK Finance, David Postings, have been seen leaving Downing Street.
The CEBR added:
While the [home repossession] figures make for grim reading, they are still quite a way down from the previous squeezes seen during the 1990s housing market crash and following the financial crisis.
This is partly due to the more stringent regulations which were put in place after the previous crises, assuring that borrowers need to pass a range of stress tests before they are approved. Moreover, UK housing wealth has increased substantially in recent years, meaning mortgage holders have a larger safety margin and are not as likely to fall into negative equity as was the case during the 1990s.
Nevertheless, as the Bank of England continues to fight inflation, the economy is entering unchartered territory. With interest rates raising so rapidly in such a short amount of time, it is not only mortgage holders but also the wider financial system that will come under strain. At the same time, the risk of recession, which had seemed to fade away in recent months, is now rising again which could lead to a more rapid increase in unemployment than currently expected. The difficult economic times look set to stay with us for some time to come.
6% base rate would mean nearly 10,000 extra home repossessions – CEBR
An interest rate of 6% (predicted by the end of the year), would mean nearly 10,000 extra home repossessions in the next three years, the Centre for Economics and Business Research has warned.
Gilt yields, which had been trending up since the start of the year, have risen sharply over the past month on the back of data showing high UK wage growth and two recent disappointing inflation releases. The latest figures this week showed core inflation rising to a more than 30-year high of 7.1%. All of this has caused mortgage rates to climb, with the average two-year fix exceeding 6% earlier this week.
The interest rate squeeze won’t be over anytime soon with the market-implied path for interest rates averaging ‘around 5.5%’ over the next three years, the CEBR said.
As mortgage holders roll off their old fixed deals and onto new contracts with much higher interest rates, they will face a substantial cut to disposable incomes. Previous Cebr research estimated the average increase in the annual cost for households who remortgage this year at £3,900, with this rising to as much as £7,300 for those with a mortgage in London.
Will the increase in interest rates lead to a similarly large uptick in mortgage repossessions? Historically, periods of rapid interest rate rises have frequently led to housing market crashes and high numbers of repossessions. More than 200,000 homes were repossessed in the three years to 1993 as the housing market crashed. This compares to 127,000 repossessions at the height of the financial crisis between 2008 and 2010.
The latest data by UK Finance show that in the first quarter, repossessions rose by 42% on the quarter to 1,160. While the increase seems large, the overall level is still low as a result of pandemic support provided by the government and lenders.
If interest rates rise above 6%, as currently implied by markets, more households would be unable to meet repayments and would eventually have to hand back the keys to their home. The CEBR’s ‘high rates’ scenario assumes that the Bank of England meets current market expectations and raises rates as high as 6.25% by early 2024, with the bank rate still standing at 5.00% by the end of next year.
This would lead to more than 9,400 additional repossessions between 2023 and 2025, implying a total of 61,600 repossessions for the period.
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