No rescue package for homeowners
Jeremy Hunt has ruled out any form of rescue package for homeowners who face shocking rises in their mortgage payments amid fears of a crash in the housing market.
Speaking to MPs in the Commons, Hunt warned that government support to mortgage holders would prolong the “inflationary agony” and that the best way to help households in the long term was to bring down inflation. Any mortgage relief scheme – similar to support previously introduced to shield households from soaring energy bills – would fuel prices rises, he said.
The Chancellor will be meeting mortgage providers later this week to look at ways they could help homeowners struggling with their mortgage payments.
Most economists agree that any form of mortgage subsidy would backfire – and be unfair on those who don’t have mortgages. Simon French, economist at Panmure Gordon and a former Cabinet adviser, told the Daily Telegraph: “It would be insane. I can’t be much clearer than that. It is the shortest answer you will ever get from an economist.”
Yet calls for government assistance are understandable. An average rate for a two-year fixed deal mortgage has risen to 6% – a high not seen since the start of December when the market imploded following Liz Truss’ cack-handed mini- budget. And average annual mortgage repayments are set to rise by £2,900 for those renewing next year.
The number of mortgage deals available to first-time buyers who don’t have access to a big saving pot is also plummeting. There were 199 products on offer over the weekend for would-be buyers looking to borrow up to 95 per cent of the value of a property, down from 347 this time last year.
According to economists at ING, 6% rates also mean that typical homeowners with a 75% loan-to-value ratio would, on average, be spending close to 40% of their disposable income on repayments. That compares to the roughly 30% LTV going into the 2008 financial crisis.
Tenants are badly impacted too as landlords are using their rising mortgage payments as a justification for significantly upping rent. Astonishing new figures from Statistica claim that average London rents are approaching 80% of residents’ average monthly pay.
Yet there are certain steps the government could take to help lighten the burden for mortgage holders. It could improve the Support for Mortgage Interest scheme, bring back tax relief on mortgage payments, insist that providers ease the rules so that homeowners can switch from repayment to interest-only mortgages and demand that they do what they can to help people struggling by giving them time.
However, a proposal by the Liberal Democrats for a £3bn emergency mortgage protection fund to protect people whose homes would otherwise be repossessed has been dismissed as self-defeating, and would only deepen the lending crisis. The government would have to borrow to fund this package, pushing up gilt yields, undermining the Bank of England’s attempts to cool the economy and forcing interest rates higher.
Such a package would be unfair on tenants too – and see them continue to pay inflated rents while their taxes are de facto being paid to help subsidise their mortgage-holding landlords.
Most mortgage borrowers are on fixed rates which means they don’t face an immediate hit from interest rate hikes. But, as economist Julian Jessop warns: “The UK has a high proportion of short-dated mortgages, so when the hit does come it will be big.” Which is why pleas for government intervention are likely to intensify because the squeeze on mortgage costs will almost certainly get worse before it improves.
Might the mortgage ticking bomb prevent the Bank of England from pressing ahead with another rate hike when its Monetary Policy Committee meets on Thursday? A growing number of economists are saying it should pause and take stock of the impact recent rises have had. Few are optimistic that it will.
Write to us with your comments to be considered for publication at letters@reaction.life