Mortgage Charter

Lord Livermore Excerpts

Wednesday 28th June 2023 Lords Chamber

[Lord Livermore (Lab)]

My Lords, when the Chancellor made his Statement on Monday, he did so against a rapidly deteriorating backdrop for Britain’s mortgage holders. Interest rates have risen 13 times to a 15-year high of 5%, but inflation is stuck at 8.7%. The average two-year fixed-rate mortgage has increased from 2.6% to well over 6%. Average mortgage costs this year will increase by £2,900. Multiple lenders have withdrawn all new mortgage deals from the market, just as 1.5 million homeowners are set to come off fixed-rate mortgages.

The Resolution Foundation estimates that home owners will pay a combined total of £15.8 billion more in mortgage payments every year by 2026. Data from the Institute for Fiscal Studies shows that, on average, mortgage holders will see their payments rise by £280 per month, equivalent to 8.3% of their disposable income, with some 1.4 million people losing a huge 20% of their disposable income. The latest data from the Bank of England shows that the value of outstanding balances with arrears increased by 9.5% in the first quarter of this year. These figures all show the level of pain among mortgage holders, which will only grow in the months ahead.

We should, of course, remember that those who have bought their own homes have done nothing wrong. They have worked hard, saved for a deposit and taken pride in having a home of their own. But the security that comes with that has, for many, turned to dread, as month after month they receive a letter from their lender telling them their bills are going up by hundreds of pounds a month.

The Government often argue that responsibility for this rapidly deteriorating picture lies in global factors, yet the figures suggest a different story. The latest data show that a typical household in Britain is now paying over £800 more per year for their mortgage than in Germany, £1,000 more per year than in Ireland and £2,000 more per year than in France. The UK has the highest inflation in the G7, with core inflation last month rising to 7.1% in the UK, a 31-year high, while in other advanced economies, including in the eurozone and the US, it has started to fall. Food prices in the UK are currently rising 20% faster than in France, 30% faster than in Germany and more than three times the rate in the US.

Interest rates first spiked dramatically last autumn when the Government gambled with people’s livelihoods in their disastrous mini-Budget, sending markets into meltdown. Since then, things have only got worse, as the instability the mini-Budget created has continued. Now, with inflation higher for longer in the UK than in other similar economies, the two-year gilt yield today stands at 5.24%, a new 15-year high, half a percentage point above that at the time of last year’s mini-Budget, and above its US equivalent. Markets now see a 70% chance of rates over 6% by the end of this year.

In this context, with millions of home owners struggling to pay their mortgages and with private sector rents rising by more than 10%, the Government’s new mortgage charter is clearly necessary, but it is also clearly insufficient. It is insufficient because, while many banks and building societies are doing the right thing by their customers, a purely voluntary set of measures will leave more than 1 million households missing out on the mortgage support they need.

Last week the Labour Party set out proposals to help people across Britain who work hard, pay their mortgages and rents and are now being hit hard by rapidly rising payments. Labour’s measures are compulsory, across the board and required of lenders. We would require lenders to allow borrowers to switch to interest-only mortgage payments for a temporary period, or to lengthen the term of their mortgage. We would require lenders to reverse any support measures when the borrower requests it. Were we in Government, we would bring in a renters’ charter to end no-fault evictions and introduce four-month notice periods for landlords. It is also important to say that we should not see a big fiscal injection into the economy at this time. If that happened, interest rates would go up even more, crippling the hopes and opportunities of the very people we seek to help.

I therefore ask the Minister the following questions. The Chancellor said in his Statement that the voluntary measures would cover 85% of the mortgage market. That leaves more than 1 million families who are not covered because their lender has not signed up to this scheme. Will the Government now consider making the measures in their mortgage charter mandatory? The Chancellor did not mention renters in his Statement, but many are paying higher rents because their landlords’ mortgage costs have gone up. What plans do the Government have to help them? Despite recent increases in the rates that lenders are charging on mortgages, there has not been an equivalent rise in the rate they offer on savings. This gap has grown by more than 50% for two-year products. What action will the Government take to ensure that savers see the full benefits from higher rates, just as borrowers are feeling the full pain? Finally, why does the UK continue to have the highest inflation rate in the whole G7? I thank the Minister in advance for her answers to these specific questions.

[Baroness Kramer (LD)]

My Lords, I rarely speak to such a thronged House. The number that we should focus on is core inflation, which removes the volatile issues over which we have little control and which has shockingly risen to 7.1%—a 31-year high, as the noble Lord, Lord Livermore, said. This number is key to interest rate rises and captures the sheer economic incompetence of the Government, as well as their wholly inadequate trade relationship with Europe post Brexit—the sharp drop in exports, British firms removed from supply chains, a collapse in business investment, the fall in sterling, customs friction driving up the cost of imports, labour shortages and incredibly low productivity.

Three groups of people will be particularly hard hit by the sharp and continuing rise in interest rates: mortgage holders with variable-rate or expiring fixed-rate mortgages, renters whose landlords face significantly higher mortgage costs and small businesses with short-term loan exposure. The mortgage charter will help some to push the pain into the future, but at a price. The hardest hit who face repossessions will feel the full force only after the next general election; I understand the Conservative strategy there.

Unlike this Government, I do not think it acceptable for the hardest hit, who face the destruction of their family finances, to take the bullet for the economy as a whole. Will the Government now put in place the emergency proposals that these Benches have made to assist those in the toughest position, who will get no help from the banks because they are regarded as unattractive customers? This is a voluntary system and the banks will use their standard approach of favouring customers with whom they want long-term relationships and denying opportunity to those with whom they do not.

Reversing cuts in the bank levy and the surcharge would do more than cover the cost of this, and I am with the noble Lord, Lord Livermore, in saying that the banks are really in a position of profiteering at this point because of their rejection of any pressure to share higher interest rates with their savers.