Mortgage crisis: how the Tories, Labour and Lib Dems will tackle soaring interest rates for homeowners

Chancellor Jeremy Hunt has agreed a plan with the banks to help mortgage holders struggling with sky-high interest rates, but has held off on offering government support.

Homeowners were faced with yet another crisis after the average two-year fixed mortgage rate soared to 6% for the first time since December 2022. Rates started rising in May when worse-than-expected data revealed that inflation in the UK was not reducing as quickly as had been hoped - spooking the mortgage markets.

But after speaking with the bosses of HSBC, Santander, and Barclays, among others, Hunt said lenders had agreed to give people a 12-month minimum before repossession proceedings start. He added that the banks had also agreed to allow those “anxious” about their finances to temporarily switch to interest-only payments or extend the length of their mortgages, with “no questions asked” and “no impact on your credit score”.

“That, I think, is going to give people a lot of comfort,” Hunt told broadcasters on Friday (23 June). “And stop people worrying about having conversations with their banks when they are worried about their financial situation.”

It comes after the Treasury faced backlash for ruling out offering a financial support package to mortgage holders struggling with the crisis. Explaining his reasoning, Hunt argued that those “kinds of schemes” - which involve “injecting large amounts of cash into the economy” - would actually only make matters worse as they would increase inflation.

“As much as we sympathise with the difficulties and will do everything we can to help people seeing their mortgage costs go up, we won’t do anything that would mean we’ve prolonged inflation,” the South West Surrey MP said. In a speech on Thursday (22 June), Prime Minister Rishi Sunak also insisted that “beating inflation has to be the priority”.

What has Labour said?

Shadow Chancellor Rachel Reeves has already responded to Hunt’s announcement, remarking: “Today’s weak response from the government on a mortgage crisis they created shows just how little they understand what families are facing.”

She added that “questions still remain” for homeowners - such as ‘does this apply to all lenders?’, ‘how many of these measures are voluntary?’, and ‘will there be fees or penalties for moving to interest only or extending the term?’ The MP also argued that Labour’s five-point plan, unveiled on Thursday (22 June), “offers practical help now” - and that the party’s “commitment to fiscal responsibility and growth” will secure the economy for the future.

The Labour Party’s plan includes:

• requiring banks to allow borrowers to switch to interest-only mortgage payments (which Hunt has just announced)
• requiring banks to allow borrowers to lengthen the term of their mortgage period (which Hunt also just announced)
• requiring lenders to reverse any support measures when the borrower requests
• requiring lenders to wait a minimum of six months before initiating repossession proceedings (Hunt has agreed with lenders that they must wait 12 months before starting repossesion)
• instructing the FCA (Financial Conduct Authority) to urgently issue consumer guidance to prevent the changes from impacting credit scores

What about the Lib Dems?

Elsewhere, Lib Dem leader Sir Ed Davey urged ministers to prevent a “tidal wave” of home repossessions by providing an emergency mortgage protection fund, which he said should be paid for by a reversal of tax cuts for big banks. According to analysis by the party, 1,250 homeowners have lost their homes after falling behind on their mortgage repayments since last year’s ill-fated mini-budget, at the hands of ex-Prime Minister Liz Truss and her Chancellor Kwasi Kwarteng.

The proposed fund, which Davey said should last for a year, would give homeowners monthly payments to help them deal with the crisis. Those on the lowest incomes, and those suffering from the sharpest rises in rates, would receive up to £300 a month. Some Conservative Party backbenchers also called for support packages from the government.