The Chancellor’s strategy to alleviate pressure on mortgage-payers has been labelled “not good enough” after he published his voluntary charter that only covers 85% of the market.
The majority of lenders have signed up to the UK Government’s mortgage charter which includes an agreement to temporary payment deferrals and extending mortgage terms.
The action comes after the Bank of England raised the base rate from 4.5 to 5% last Thursday, pushing up monthly bills for millions with variable rate mortgages and those coming off fixed rate deals.
It was the 13th increase in a row since December 2021, as the Bank tries to return inflation towards its 2% target by cooling demand in the economy.
Chancellor Jeremy Hunt last Friday agreed with lenders that mortgage holders struggling with repayments would be given a 12-month grace period before repossessions begin, with borrowers also able to extend the term of their mortgages or move to an interest-only plan temporarily “no questions asked”.
Read more: Rishi Sunak: mortgage holders must 'hold their nerve' as rates surge
Mr Hunt told MPs that he is “working on a solution” to ensure banks act quicker to pass on interest rate rises to savers.
The Chancellor claimed he told bank bosses in “no uncertain terms” that there is an issue after acknowledging it is currently “taking too long” for them to pass on the changes to savers.
Mr Hunt insisted that his mortgage charter “should offer comfort to those who are anxious about the impact of high interest rates on their mortgages”, adding that it will” provide support to those who do get into any extreme financial difficulties”.
Setting out his plans in the Commons, Mr Hunt said the support will include “temporary payment deferrals, part interest, part repayment, as well as extending mortgage terms, or switching to interest-only payments”.
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He added: “To supplement that, we’ve agreed as part of the mortgage charter that in the extreme situation in which a lender is seeking to repossess a home, there will be minimum 12-month period from the first missed payment before there is a repossession without consent.
“Taken together, these measures should offer comfort to those who are anxious about the impact of high interest rates on their mortgages and provide support to those who do get into any extreme financial difficulties.”
He insisted that the UK Government “won’t flinch in our resolve” to halve inflation amid the financial pressure.
He said: “Tackling inflation is the Prime Minister and my number one priority.
“We said we would halve inflation, not because it was an easy thing to do, but because it is the right thing to do, and we won’t flinch in our resolve because we know getting rid of high inflation from our economy is the only way that we can ultimately relieve pressure on family finances and on businesses, and that is why we will seek to remove inflationary pressures in our economy, and not stoke them.
“That is what the measures I have set out today will help to do.”
The Chancellor acknowledged that “higher inflation and interest rates cause anxiety and concern for many families”, but stressed that the Tory Government “is already supporting families with one of the largest support packages in Europe worth £94 billion, or £3,300 per household on average”.
Read more: Sunak unable to grasp 'economic situation facing households'
He added: “As interest rates rise I will not take action that undermines the Bank of England’s monetary objectives, but where there are non-inflationary measures we can take to relieve the anxiety faced by families, we will do so.”
But Labour has warned that the UK Government’s voluntary set of measures is “just not good enough”.
Shadow chancellor Rachel Reeves said: “Our plan would have provided real help, but (the) Government have provided just a bad cover version.
“While many banks and building societies are doing the right thing by their customers, a voluntary set of measures is just not good enough.
She added: “The Chancellor today said that the voluntary measures would cover 85% of the mortgage market.
“But what is his answer for the more than one million families who are missing out because their lender hasn’t signed up to this scheme? Tough luck.
“Just how bad does it have to get before the Chancellor recognises that mandatory action is needed to provide meaningful assistance?”
Mr Hunt told the Commons that his Government “will be making big efforts to sign up any remaining lenders who’ve not signed up to the charter”.
He added: “To get, I think, to 85% over the period of four days is a good start.
“We’d love to get the other 15% on board, but what I would say is that if they’re not on board that will make their mortgage offer less competitive to many thousands of families, who will be looking to sign up for their new mortgage with someone who does take efforts to reduce the anxiety they may feel.”
SNP economy spokesperson, Stewart Hosie, said: "Although some of the Chancellor's statement is welcome, warm words will not ease the pressure on Scottish households.
"The UK Government must review whether setting the inflation target alone remains the most appropriate target for the Bank of England to be working towards, and consider adding to the tools of the central bank to both control inflation and generate growth.”
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