Higher borrowing costs are the central bank’s main tool for crimping demand. The problem is that mortgage relief dilutes the Bank of England’s fight against inflation, which remained stubbornly high at 8.7% in May.
That would crimp banks’ profit margins but could prevent a wave of forced selling or repossessions. Official pressure could persuade banks to offer payment holidays for the less wealthy, as banks have done in Spain, or allow borrowers to fix rates at low levels for part of the loan, as in Poland. Finance minister Jeremy Hunt said on Tuesday he would talk to lenders. The government may therefore lean on banks instead. That’s because the public finances are stretched and investors are monitoring Britain’s debt levels following the disastrous “Trussonomics” experiment. But neither can he afford to offer state aid to homeowners. With an election due by January 2025 – and polls showing his Conservatives trailing the opposition Labour Party by 16 percentage points – Sunak cannot afford to do nothing. The Resolution Foundation estimates the average homeowner who renegotiates their mortgage in 2024 will have to pay an extra 2,900 pounds a year. Some 800,000 borrowers still need to refinance their loans this year, followed by a further 1.6 million homeowners next year, according to UK Finance. That’s the highest level since they topped 6% after the infamous “mini-budget” that led to the departure of Sunak’s predecessor Liz Truss. Rates on the average five-year fixed-rate housing loan are around 5.67%. Rising prices and borrowing costs have left Britain’s 1.7 trillion pound mortgage market in a bind. The risk is that he does too little to solve the home loans emergency – and his own government’s popularity crisis. Stubbornly high inflation, tight public finances and jittery investors will force him to tread carefully.
LONDON, June 21 (Reuters Breakingviews) - UK Prime Minister Rishi Sunak is under pressure to provide relief for mortgage borrowers buckling under soaring interest rates.
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