Conservative Members of Parliament (MPs) are divided on whether the UK government should intervene to address the mortgage crisis as the Bank of England prepares to raise interest rates for the 13th consecutive time. This comes at a crucial time for the economy, with the UK facing the highest inflation rate among G7 countries. City economists predict a slight decrease in the annual inflation rate from 8.7% in April to 8.4% in May. The rising costs of food and other essentials are putting pressure on consumers, making it difficult for them to meet their financial obligations.
As the pressure mounts on the government to provide aid to mortgage holders and with the Conservative Party lagging behind in the polls before key byelections, some Conservative MPs are calling for urgent support. However, Health Secretary Jeremy Hunt has dismissed these calls. This disagreement within the party highlights a fresh division over economic management. Jake Berry, the influential chair of the Northern Research Group of Tory MPs, warns that progress made in supporting families with energy costs during the winter could be wasted if immediate action is not taken to help homeowners at risk of losing their homes.
In recent weeks, financial market turbulence has caused the average cost of a two-year fixed-rate mortgage to exceed 6%, the highest since Liz Truss’s premiership. Major UK lenders, including Nationwide, NatWest, and HSBC, are rushing to withdraw hundreds of cheaper mortgage deals. If borrowing costs remain elevated for several years, economists at Capital Economics predict house prices across the UK could collapse by 25% with no recovery until 2025.
Borrowers are currently experiencing the sharpest increase in interest payments since the late 1980s. The Bank of England has raised its key base rate 12 times consecutively since December 2021. Financial markets anticipate another rate hike on Thursday to combat persistently high inflation. Traders predict at least a quarter-point increase from the current 4.5% level, with the possibility of further increases bringing the rate close to 6% by the end of the year.
Hunt has arranged a meeting with banking chiefs at the Treasury on Friday to discuss possible responses to the mortgage crisis. During Tuesday’s House of Commons debate, divisions among Conservative MPs emerged. Jake Berry and Jonathan Gullis called for the reintroduction of tax relief on mortgage interest, known as mortgage relief at source (Miras). This policy was originally launched in the 1980s to promote homeownership but was abolished in 2000 due to criticism that it disproportionately benefited the wealthy. However, Treasury Minister Andrew Griffith warned that such a tax break could have disastrous consequences for government finances and result in higher inflation.
Chancellor of the Exchequer Rishi Sunak has consistently rejected calls for mortgage support and reiterated this stance during Tuesday’s debate. He argued that providing such schemes would undermine the Bank of England’s efforts to control inflation, emphasizing that the government has already allocated substantial funds to assist families coping with rising living costs.
Figures on Sunak’s right wing are increasingly critical of the prime minister’s managerial approach to economic policy and are demanding tax cuts, deregulation, and a stronger commitment to Brexit. Labour Party seeks to capitalize on public dissatisfaction with soaring mortgage costs by labeling them a “Tory mortgage penalty.” They highlighted the significant increases facing voters in the upcoming byelections triggered by Boris Johnson’s resignation.
Shadow Chancellor Rachel Reeves stated in the House of Commons that more than 10,000 households in Johnson’s former constituency of Uxbridge and South Ruislip would see an average increase of £5,200 per year on their mortgages. In Selby and Ainsty, former MP Nigel Adams’ seat, Labour estimates that over 12,000 households would face an average increase of £2,700 on their home loans. Labour blames the Conservative government’s mini-budget and 13 years of economic failure for the current high inflation.
Over a quarter of UK homeowners on fixed-rate mortgages are expected to face the end of cheaper deals before the next general election in January 2025. The Resolution Foundation thinktank predicts that the average household will experience a £2,900 increase in annual mortgage repayments.
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