Interest rates: Force banks to offer mortgage help, says Labour

The government should force banks to help homeowners struggling with mortgage payments, Labour has said.

Shadow chancellor Rachel Reeves said borrowers should be allowed to switch to interest-only payments for a temporary period to ease the crisis.

Many lenders are already offering this but Labour says it needs to be enforced across the board.

However, Ms Reeves said major financial support for mortgages was not a good idea as this could fuel price rises.

She told the BBC Radio 4’s Today programme “a big fiscal injection of cash into the economy, especially an untargeted injection, would not be the right approach”.

It comes ahead of an expected rise in interest rates later, which would see mortgage-holders facing further increases in payments.

Ms Reeves said Labour’s plan “to ease the Tory mortgage penalty offers practical help now, while our commitment to fiscal responsibility and growth will secure our economy for the future”.

Chancellor Jeremy Hunt is meeting bank chiefs again on Friday to see what additional help they can give. He has already urged lenders to offer the measures which Labour wants to make mandatory.

He is coming under pressure for the government to step in with Covid-style financial help for households.

But he has rejected calls by Tory backbenchers Sir Jake Berry and Jonathan Gullis to bring back a tax break that would cut monthly payments.

He told MPs: “Those kind of schemes, which involve injecting large amounts of cash into the economy, would be inflationary.”

The government has also rejected a Liberal Democrat plan for grants of £300 a month for struggling homeowners, to be funded by a windfall tax on the banks.

Downing Street insists Rishi Sunak is on course to meet his target of halving inflation – the rate prices are rising – this year, even though the rate remains stubbornly high at 8.7%.

Speaking at an event on Thursday, the prime minister is expected to say he feels a “deep moral responsibility” to lower inflation, adding: “I’m completely confident that if we hold our nerve, we can do so.”

However, Foreign Secretary James Cleverly admitted “not all the levers of control are in the government’s hands”, with the independent Bank of England responsible for setting interest rates, one of the main tools to tackle inflation.

Instead, Mr Cleverly told BBC Radio 4’s Today programme the government was doing things like being cautious on offering big public sector pay increases and being conscious that increased government borrowing could fuel inflationary pressures.

Raising interest rates makes it more expensive to borrow money and theoretically encourages people to borrow less and spend less, meaning price rises should ease.

The Bank of England is widely expected to increase interest rates by 0.25% to 4.75% at 12:00 BST, although some analysts have suggested the base rate could go up to 5%.

Labour’s plan includes guaranteeing that relief measures such as temporary interest-only payments and extending the time period for paying back mortgages are available.

The party is also calling for a six-month grace period for homeowners threatened with repossession as well as guarantees that credit scores will not be affected by asking for help.

Labour says the government should order regulator the Financial Conduct Authority to require lenders to offer all these options.

In a statement, UK Finance, which represents the banking and finance industry, said: “Over the last year, lenders have helped nearly 200,000 borrowers who cannot meet their full mortgage payments by providing tailored forbearance.

“This could be a period of reduced payments, a period of zero payments or a temporary switch to interest-only.

“Contacting your lender to find out the options available won’t impact your credit score, but missing payments will.”