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Mortgage Market

Volume 830: debated on Wednesday 14 June 2023

Commons Urgent Question

The following Answer to an Urgent Question was given in the House of Commons on Tuesday 13 June.

“The Government recognise the anxiety that people feel about mortgages, and are using the tools at their disposal to limit the rise in rates. We are not an outlier in this regard: as Opposition Members will know, central banks around the world are raising interest rates to combat high inflation driven by the pandemic and Putin’s war.

Given that inflation is the number one enemy, we are focused on delivering the Prime Minister’s pledge to halve it this year. Nevertheless, I know that mortgage rates and the availability of mortgages are a concern right now. Mortgage arrears and repossessions remain below pre-pandemic levels but, if a borrower falls into financial difficulty, guidance from the Financial Conduct Authority requires firms to offer tailored support and to deal with customers fairly. The Government also offer loans to help eligible home owners to cover the interest on their mortgages through the support for mortgage interest scheme from the Department for Work and Pensions, and make it clear that repossession must be a last resort for lenders through the pre-action protocol.

As long as economic challenges exist, we will continue to stand by families. To date, government support to help households with rising bills in 2022-23 and 2023-24 totals £94 billion—that is equivalent to an average of £3,300 per household—as well as a record 9.7% increase in the national living wage, which I am sure that the Opposition support. While we are taking action to halve inflation and help families, the Opposition would make it all worse. The Institute for Fiscal Studies has been clear that Labour’s £28 billion a year borrowing plan would risk even higher interest rates and higher inflation, and even the shadow Chancellor has admitted that its position is reckless. This is a Government on the side of the British people and that is why, as we shelter people from rising prices, our task remains getting inflation down and getting the economy growing and debt falling.”

My Lords, every day brings more bad news for Britain’s mortgage holders. Two-year fixed-rate mortgages are now approaching 6%, and HSBC and Santander are just two lenders to have withdrawn all new mortgage deals from the market. The average mortgage holder is facing an increase in payments of £2,300 this year alone and borrowers are now being warned that mortgage rates are set to rise even further.

Interest rates first spiked dramatically last year when the disastrous mini-Budget sent markets into meltdown, but the two-year gilt yield has now exceeded even those levels above its US equivalent. With 1.5 million home owners set to come off fixed-rate mortgage deals this year, facing severe increases in their repayments, why is UK inflation not falling as quickly as the Government promised and why is inflation higher for longer in the UK than in many similar economies?

My Lords, the underlying causes of high inflation, as we all know, are driven by higher energy prices as a result of the war in Ukraine and a tight labour market. There are complex factors as that plays out but the Government are absolutely clear in their commitment to get inflation down. We have seen inflation begin to fall, and institutions such as the IMF have recognised the Government’s action in this area and that we are set on the right path to reduce inflation, which will help ease the pressure on not just mortgage holders but all people facing higher prices at the moment.

My Lords, will the Government set up an emergency mortgage protection fund, potentially recouped by a bank levy, to ensure that those struggling the most will not lose their homes and face financial wreckage and wreckage of their lives?

My Lords, I hope the noble Baroness will take some comfort from the fact that mortgage arrears and repossessions remain below pre-pandemic levels. I reassure her that, if a borrower falls into financial difficulty, guidance from the FCA requires firms to offer tailored support and deal fairly with customers facing difficulties in meeting their payments. The Government also have a range of schemes in place to support borrowers, not least the support for mortgage interest scheme.

As my noble friend knows, the mortgage market is affected by interest rates, both the current rate and, even more importantly, the forecast rate. Is she aware that the pricing of housing is falling UK-wide, and falling extensively, partly because of mortgage costs but partly because of reasons that are nothing to do with mortgage cost: the policies of the Secretary of State, Mr Gove, which are very anti big builder? They are also causing difficulty in the rental market.

In that situation, with growth just showing the ability to come through, which is very encouraging, and with wages just beginning to show some positive response to the situation, is it not time that the Bank of England—although we are not responsible for it—recognise that rates should be held for the moment and allow the market to settle? Given the two factors I have mentioned—growth growing and inflation falling— I hope the interest rates recommended by the Bank of England will fall.

My Lords, interest rate decisions remain a matter for the independent Monetary Policy Committee of the Bank of England, but I say to my noble friend that high inflation is also bad for the economy. To have high growth we must first have low inflation, so we absolutely support the Bank of England in its task of pursuing the 2% inflation target and the difficult decisions it will have to take to achieve that.

My Lords, I cannot resist the temptation to draw to the House’s attention the fact that this is the 278th anniversary of the Battle of Naseby—I am not picking a fight with the noble Lord.

My question concerns the fact that this is going to have a massive effect on the buy-to-let market. We are expecting further increases in interest rates, given recent news. A report in the Times last week showed the relationship between increases in the bank rate and the knock-on effect on “underwater” buy-to-let owners. This will cause severe damage to the buy-to-let market. I have mixed feelings about that market, but to the extent that owners of such properties cannot maintain their property properly, this will have a deleterious effect on the UK’s housing stock. The Government should be seized of this issue. To me, the solution is that the Government should provide funds to local authorities in order that they can take over these underwater buy-to-let properties—interestingly, a large proportion of them are ex-council properties anyway—so that local authorities can address the housing problems in their local areas.

My Lords, the noble Lord will know that the Government have given local authorities many more powers and more discretion in how they approach housebuilding and house supply in their area in recent years. He is right that the changes to interest rates will affect those in rented accommodation as well as those who have mortgages through channels such as he described. The Government are putting in place further support for renters. We have a series of reforms coming in through the Renters (Reform) Bill which will improve quality and security in the private rented sector. For those on benefits, the Government boosted investment in the local housing allowance in April 2020 by nearly £1 billion, and rates have been maintained at this increased level.

Sitting suspended.