Banks and building societies will meet with Chancellor Jeremy Hunt to discuss the turmoil in the mortgage market.
It comes after the Bank of England’s shock decision on Thursday to raise rates to 5%, from 4.5%, as it tries to tackle persistently high inflation.
The government and lenders are under pressure to do more to help those struggling with rising mortgage rates.
But Hunt and Prime Minister Rishi Sunak have so far rejected suggestions that the government intervene.
After the interest rate hike was announced, Sunak said the government would stand “firm and stick to its plan” to reduce inflation.
At Friday’s Downing Street meeting, which UK Finance said had been billed as a “collaborative event”, top lenders will meet Hunt, who has resisted calls for direct government intervention.
The foreign minister said the support, like the tax break, could stoke inflation, which according to figures released Wednesday was stuck at 8.7% in May.
Instead, discussions are likely to focus on strengthening existing help for those facing hardship. Lenders are expected to help in the following ways:
- By providing more flexibility to homeowners if they request changes to existing offers
- Driving support for mortgage interest payments for beneficiaries
- Allowing people a temporary respite from payments without affecting their future borrowing capacity
Some called for more aggressive action: The National Homeowners Association (NRLA) called for the reintroduction of mortgage interest relief and the unfreezing of housing benefit rates.
It said that the majority (85%) of the properties bought to rent had mortgages that were interest only and were “particularly exposed” to rising rates.
The NRLA warned that 5% interest rates could force landlords to sell 735,000 rental properties. “This will exacerbate the current supply and demand crisis in the private rental sector,” he said.
“Concerned”
Bank of England Governor Andrew Bailey admitted on Thursday that the 13th consecutive rate hike since December 2021 would cause “hardship and pain” for many. Those with loans would be “understandably concerned,” he said.
Mortgage rates have been going up for months. An average two-year fixed-rate mortgage is currently at 6.19%, while the five-year rate is 5.82%. In June of last year, those rates were closer to 3%, according to financial data firm Moneyfacts.
The latest move from the Bank of England has yet to trickle down to current mortgage rates, according to David Hollingworth of London and Country brokers.
“Fixed rates have not accelerated, they are still moving fast but there is no acceleration. We will see how the markets react in the next few days,” he said.
The BBC understands that some savings rates have already been placed after Thursday’s rate hike, although loyal savers with easily accessible accounts have yet to see notable increases.
Lenders have been willing to assure borrowers that they will be able to obtain loans. Earlier this week, Leeds Building Society chief executive Richard Fearon told the BBC the mortgage market has remained strong and “lenders want to lend”.
Referring to the 2008 financial crisis, he said: “This is nothing like the credit crunch.”
The London-based firm reported pre-tax profit of $5.2bn (£4.3bn) for the last three months of 2022, up more than 90% on the same period a year earlier.
How will the latest interest rate hike affect you? You can share your experiences by sending an email haveyoursay@bbc.co.uk.
Please include a contact number if you are willing to speak to a BBC journalist. You can also get in touch in the following ways:
If you are reading this page and cannot see the form, you will need to visit the mobile version of the BBC website to submit your question or comment or you can email us at HaveYourSay@bbc.co.uk. Please include your name, age and location with any submission.