In an attempt to combat soaring inflation, the Bank of England (BoE) has again raised interest rates – now set at a 15-year high of 5%. In an interview with the BBC, the Prime Minster Rishi Sunak insisted that the government was responding to the cost-of-living crisis and that people should ‘hold their nerve’ over rising interest rates.
Following the increase in interest rates, millions of households are facing unaffordable mortgage repayments, with many worrying over the potential for repossession. This has had a knock-on effect on renters, many of whom have seen rents increase across the market, with further worries that some landlords may decide to exit the property market altogether.
Rishi Sunak has reiterated his support for the BoE’s decision. In contrast, opposition parties such as the Liberal Democrats has criticised his statements as ‘patronising’ for failing to offer adequate support for vulnerable households. Even within the government, some advisors have been arguing for more extreme measures, calling on the BoE to ‘create a recession’ to bring inflation under control.
Around 75% of lenders have signed up to a new mortgage charter negotiated with the government and the Financial Conduct Authority, setting out some new guidelines:
- Lenders will not repossess homes until 12 months after an initial missed mortgage payment
- Lenders nearing the end of a fixed-rate deal can ‘lock-in’ a new contract 6 months before their current deal expires
- Borrowers can switch to an interest-only mortgage for 6 months, or extend their mortgage term to reduce monthly repayments, without going through another affordability check. At any point within the 6 months, the borrower is entitled to switch back to their original terms
- Borrowers can switch directly to a new mortgage contract when their existing mortgage expires
- Lenders will offer timely support to borrowers in advance of their interest rate changing.
The Chancellor of the Exchequer has reiterated the government’s support for two vulnerable groups of households: ‘…people who are at real risk of losing their homes because they fall behind in their mortgage payments’, and ‘people who are having to change their mortgage because their fixed rate comes to an end’. The new mortgage charter is aimed at ensuring that these vulnerable groups can seek support from lenders, and have sufficient protections against losing their homes.