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Labour rules out financial support for struggling mortgage holders

22 Jun 2023 4 minute read
Shadow chancellor Rachel Reeves. Pic: Dominic Lipinski PA

Rachel Reeves has ruled out Labour backing plans that would see subsidies or financial support for mortgage holders, as struggling homeowners brace for another interest rate rise.

The Bank of England is widely expected on Thursday to raise interest rates for the 13th time in a row but the shadow chancellor rejected calls from some quarters for direct financial help for homeowners hit by rising rates.

Banks would instead be forced to help mortgage holders struggling with payments under Labour plans, with the opposition urging the Government to compel lenders to allow borrowers to temporarily switch to interest-only payments or lengthen their mortgage period.

Banks would also have to wait at least six months before starting repossession proceedings as part of the party’s five-point plan amid growing pressure on the Government to respond to the crisis.

The Liberal Democrats have called for an emergency mortgage protection fund paid for by a reversal of tax cuts for big banks but Ms Reeves warned that such measures could worsen the fiscal situation.

“I recognise the challenge of inflation, and a big fiscal injection of cash into the economy, especially an untargeted injection, would not be the right approach,” Ms Reeves told BBC Radio 4’s Today programme.

High inflation

The Bank is expected to hike rates to 4.75% from 4.5% amid persistently high inflation.

“What I would be doing if I was chancellor is I would be helping people who are struggling with those higher costs,” Ms Reeves said.

“There’s different ways you can do that but actually helping people by properly taxing the energy companies and using that money to help people with their bills is a practical thing the Government can still do.

She insisted that such support could help bring down inflation, telling the BBC “if you were to freeze bills for example or reduce them, that does directly impact inflation”.

“But the point is, however, you use that money from the windfall tax you could use it to shield people from those higher prices and similarly what I’m setting out today, my five-point plan to help people with mortgages, is about helping people with those higher costs.”

Annual mortgage repayments are set to rise by £2,900 for the average household remortgaging next year, according to economists at the Resolution Foundation.

With those on variable rate mortgages also being hit, Labour argues the “gap” in rates compared to neighbouring countries is leaving typical households in Britain £1,000 worse off.

Under Labour’s plans for an initial 12 months, the Financial Conduct Authority (FCA) would also be told to issue guidance to prevent the changes affecting credit scores.

Lenders would also be forced to allow any changes to be reversible, unlike under the current situation where borrowers can be trapped in less favourable terms.

Options such as extending a mortgage term can ease homeowners’ monthly payments in the short term.

But they could hit retirement plans or leave borrowers paying the lender more in interest over the course of the mortgage.

FCA

Labour said they could achieve the changes through working with the FCA rather than introducing new legislation.

“It’s not urging, it’s an instruction,” Ms Reeves said.

“An instruction that was made during the Covid pandemic via the regulator to say to banks they have to offer these products to people who are in financial difficulties.

She said it was crucial that customers know that if support is sought, “your credit rating is not affected”.

“There are many people who are really worried at the moment about coming forward and identifying themselves as someone who is struggling with their mortgage because they worry that will have knock-on effects on their credit ratings.”

Chancellor Jeremy Hunt will meet lenders on Friday to ask what help they can give to struggling borrowers and see what flexibilities they can offer to those in arrears.

But Downing Street has made clear the Chancellor will not be forcing lenders to take action.

The Conservatives said they had “taken immediate action to support families and to make the mortgage market more flexible”.

“Putting the economy back on the right track is our priority and that is why we committed to halve inflation by the end of the year,” a spokesman said.

“Labour cannot be trusted to take the difficult action necessary, they are always out for easy answers, that is why all they propose are the same old Labour ideas of more spending and borrowing that will increase the rate of inflation and interest rates.”


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Steve A Duggan
Steve A Duggan
9 months ago

I still don’t know why the UK government is not looking at other measures to control inflation (and hence interest rate rises). Just relying on the BoE is irresponsible. Raising interest rates has not curbed inflation yet and all it is doing is making us all poorer.

George Thomas
George Thomas
9 months ago

Sadly, this is probably the right approach. One cannot throw money at everyone struggling to the extent that it means not spending money on why people are struggling. Give us effective, reliable renewable energy, support for local farmers and affordable (good quality) housing rather than mortgage support.

hdavies15
hdavies15
9 months ago

Had UK government and its lightweight Opposition party been more honest at the outset much of this surge in inflation and hence interest rates need not have happened. They stood idly by letting energy/fuel prices go berserk then started chucking palliatives at it when the damage was done. To cap it all the Tories then put the demented Truss in charge and within weeks she had ensured that recovery was well and truly sunk. Lack of basic savvy all round.

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