Chancellor Jeremy Hunt will call on banks to tackle what one Tory MP described as a “mortgage bomb about to go off”, but ruled out providing financial support to families struggling with the rising cost of mortgages.
On Tuesday, Hunt said he wanted to help the Bank of England “suffocate” inflation and that injecting more money into the economy would add upward pressure on prices and interest rates.
The chancellor rejected calls from Tory MPs to reinstate the Thatcher-era tax break – called mortgage interest relief at source – to cut monthly payments. The tax concession was abolished by Labor Secretary Gordon Brown in 2000.
“We are not going to do anything that will prolong the inflationary suffering that people are going through,” Hunt told MPs at Treasury questions in the House of Commons.
Instead, the chancellor will call on major lenders on Friday to assess the state of the mortgage market and see what further help they can give people struggling with their monthly payments.
On Monday, the cost of a two-year fixed-rate mortgage in the UK rose above 6 percent for the first time since December.
Lenders increased the cost of their mortgage products after financial markets raised their expectations of further interest rate hikes by the Bank of England in the wake of bad inflation data.
But under a December 2022 agreement between banks, regulators and the Treasury Department, lenders are required to provide tailored support to those struggling to repay.
Andrew Griffiths, minister for the City of London, said lenders could offer extensions of mortgage terms or switch to interest-only holidays. “Any return of property should be an absolute last resort,” he added.
Meanwhile, there was only tepid support from the Treasury for the suggestion of Michael Gove, the government’s minister responsible for housing, that 25 years Fixed rate mortgages can help alleviate the situation.
There are already long-term fixed-rate mortgages in the market, Griffiths said, but “the limiting factor is consumer demand.” He added that they were not very popular.
The idea of a “lifetime” mortgage was proposed in the 2019 Conservative election manifesto, but Treasury insiders said markets would have to settle – in other words, interest rates would have to fall significantly from their current levels – before it was likely to be popular. .
Richard Donnell, director of research at real estate site Zoopla, said 10- or 20-year financing expenses discourage borrowers from breaking the habit of opting for cheap, short-term deals, and he hopes prices will come down next time.
“My point is that the government should come in and pump this primary market to open it up,” he added.
“I don’t think the market is going to get there on its own. Maybe the government needs to underwrite or underwrite these mortgages — maybe for first-time buyers only — to reduce the risk premium.”
Labor’s Treasury spokesman Pat McFadden said the UK was still paying the price for the “giant economic experiment” conducted last year by Liz Truss, the former prime minister, which drove up mortgage rates.
The problem is also beginning to worry Conservative MPs as they prepare for a general election expected in 2024.
Jake Perry, a former Conservative minister, said there was a “mortgage bomb about to go off”.
Rishi Sunak has insisted his pledge to halve inflation by the end of 2023 to around 5.5 per cent remains on track, and that this is the best way to tackle the mortgage problem.
Downing Street said the government was already doing a lot to help people in the cost of living crisis, but did not indicate any intention to override existing plans.
Additional reporting by James Pickford
