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| Mortgages: Banks offer more flexibility to struggling borrowers | |
| (32 minutes later) | |
| Banks and building societies will offer more flexibility to struggling mortgage-holders as rates soar. | |
| The move comes after bank bosses met the chancellor, Jeremy Hunt, in Downing Street on Friday. | |
| Borrowers will be able to make a temporary change to their mortgage terms, then will be able to return to their original deal within six months. | |
| This would allow some to have lower repayments for a short time, by just paying the interest on the home loan. | |
| Mr Hunt said the temporary flexibility on switching terms would not affect credit scores. | |
| However, it will still be the case that missing payments or taking a total break on payments, known as a mortgage holiday, will still harm someone's ability to borrow in the future. | |
| Lenders also agreed to a 12-month delay before taking repossession proceedings against borrowers unable, or unwilling, to pay over the long term. | |
| Bank chief executives described it as a "productive" meeting as they left Downing Street. | |
| Earlier this week, the Labour Party issued a five point plan which it said would ease what it called "the Tory mortgage penalty" and help limit repossessions. | |
| Labour said the typical British household was paying £1,000 more in mortgage payments than neighbours in Germany, France, the Netherlands and Ireland. | |
| Five ways to save money on your mortgage | |
| How the interest rate rise affects you | |
| The meeting between lenders and Mr Hunt comes after Thursday's shock decision by the Bank of England to raise interest rates to 5%, up from 4.5%, as it tries to tackle inflation. | |
| Millions of UK households will see their budgets squeezed as a result. | Millions of UK households will see their budgets squeezed as a result. |
| Some, including the National Residential Landlords Association (NRLA), are calling for government action, such as the reintroduction of mortgage interest relief and the unfreezing of housing benefit rates. | Some, including the National Residential Landlords Association (NRLA), are calling for government action, such as the reintroduction of mortgage interest relief and the unfreezing of housing benefit rates. |
| The NRLA warned that interest rates of 5% could force landlords to sell 735,000 rental properties which it said would "exacerbate the ongoing supply and demand crisis across the private rented sector". | |
| But Mr Hunt and Prime Minister Rishi Sunak have dismissed suggestions that the government should step in, arguing providing support for borrowers could undermine the Bank of England's battle against inflation. Figures released on Wednesday showed remained stuck at 8.7% in May. | |
| After the interest rate rise was announced, Mr Sunak said the government would remain "steadfast and stick to its plan" to bring down inflation. | |
| If you can't see the calculator, click here. | If you can't see the calculator, click here. |
| Tim Pitt, a partner at the consulting firm Flint Global and a former Treasury adviser, said the chancellor should "hold his nerve". | Tim Pitt, a partner at the consulting firm Flint Global and a former Treasury adviser, said the chancellor should "hold his nerve". |
| "He needs to not make the Bank's job harder," he told the BBC's Today programme. | "He needs to not make the Bank's job harder," he told the BBC's Today programme. |
| Interest rate rises are partly aimed at dampening spending in the economy, by reducing people's disposable income. So providing general support for mortgage-holders would work counter to the Bank of England's policy. | |
| Bank of England governor Andrew Bailey admitted on Thursday that the 13th consecutive rise in rates since December 2021 would cause "difficulty and pain" for many. Those with loans would be "understandably worried" he said. | Bank of England governor Andrew Bailey admitted on Thursday that the 13th consecutive rise in rates since December 2021 would cause "difficulty and pain" for many. Those with loans would be "understandably worried" he said. |
| Mortgage rates have been rising for months. An average two-year fixed rate mortgage is currently at 6.19%, while the five-year rate is 5.82%, according to financial data firm Moneyfacts. | |
| The average two-year tracker mortgage rate rose to 5.66%, from 5.49% following Thursday's rate rise. | |
| In June last year those rates were closer to 3%. | |
| The latest move by the Bank of England has yet to filter through into current mortgage rates, according to David Hollingworth from London and Country brokers. | The latest move by the Bank of England has yet to filter through into current mortgage rates, according to David Hollingworth from London and Country brokers. |
| "Fixed rates have not gone into overdrive, they're still moving rapidly but there's no acceleration. We'll see how the markets react in the coming days," he said. | "Fixed rates have not gone into overdrive, they're still moving rapidly but there's no acceleration. We'll see how the markets react in the coming days," he said. |
| Rising interest rates can also reduce spending in the economy by boosting the incentive to save money. | |
| The BBC understands some savings rates have already been put up following Thursday's rate rise. But in recent weeks, MPs have criticised banks for failing to pass rate rises on in full to savers with easy-access accounts. | The BBC understands some savings rates have already been put up following Thursday's rate rise. But in recent weeks, MPs have criticised banks for failing to pass rate rises on in full to savers with easy-access accounts. |
| Harriet Baldwin, chair of the Treasury Committee, told the Today programme that High Street banks had been "incredibly slow" in passing on rate rises. | Harriet Baldwin, chair of the Treasury Committee, told the Today programme that High Street banks had been "incredibly slow" in passing on rate rises. |
| She said that banks had "taken it for granted that we've got used to not earning anything on savings", adding that savers were "basically being taken advantage of at the moment". | She said that banks had "taken it for granted that we've got used to not earning anything on savings", adding that savers were "basically being taken advantage of at the moment". |
| How will the latest interest rate rise affect you? You can share your experiences by emailing haveyoursay@bbc.co.uk. | |
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| Related Topics | Related Topics |
| Inflation | Inflation |
| Bank of England | Bank of England |
| Mortgages | Mortgages |