Labour unveils five-point plan to ‘ease Tory mortgage penalty’ as costs surge

Labour has unveiled a five-point plan to “ease the Tory mortgage penalty” amid warnings of an “eye-watering” hit to millions of households’ disposable incomes as a result of a surge in mortgage costs.

The proposals also come after Labour frontbench politicians faced a grilling in media interviews in recent days, calling for clarity on what the opposition would do differently to the Conservatives.

The Bank of England is expected to raise interest rates later today. Labour set out a plan intended to ease the hit to homeowners and halt repossessions, published alongside new analysis from the party that found that a typical household in Britain is paying £1,000 more in mortgage payments than households in other advanced economies due to higher mortgage rates.

Jeremy Hunt ruled out providing major financial support to mortgage holders earlier this week. But the Chancellor said he would meet with lenders to discuss what help they could give to households struggling with rising costs.

Announcing Labour’s plan, Rachel Reeves said: “Across Britain, people are being hit hard by a Tory mortgage penalty. Unlike this government, Labour will not stand by as millions face a mortgage catastrophe made in Downing Street. Labour will restore the economic and financial security that families deserve.

“Our five-point plan to ease the Tory mortgage penalty offers practical help now, while our commitment to fiscal responsibility and growth will secure our economy for the future.”

The Shadow Chancellor added: “With food and energy prices so high, higher mortgages are the last thing families need. But it will not be the last burn from Tory economic failure they feel. Because, over the last 13 years, this government have failed to secure our economy, failed families and failed businesses.

“Instead of squabbling over peerages and parties and ruling out any action on mortgages, the Tories should be taking responsibility and acting now.”

What Labour says it will do

The plan includes:

• Requiring lenders to allow borrowers to switch to interest only mortgage payments for a temporary period.
• Requiring lenders to allow borrowers to lengthen the term of their mortgage period.
• Requiring lenders to reverse any support measures when the borrower requests.
• Requiring lenders to wait a minimum of six months before initiating repossession proceedings.
• Instructing the FCA to urgently issue consumer guidance stating that borrowers making temporary switches to interest only mortgage payments and lengthening the term of their mortgage period should not see their credit score affected.

The party is calling on the government to put its proposed measures in place for an initial period of 12 months.

According to analysis by the Institute for Fiscal Studies, around 1.4 million mortgage holders could lose more than 20% of their disposable income as rates rise, in what the think tank’s associate director Tom Waters described as an “eye-watering” rise.

Calls for more help for renters

Ben Twomey, director of campaign group Generation Rent, called on Labour to set out more support for private renters too to stop them losing their homes.

“Rent increases over the past five years are of a similar scale to the predicted mortgage crunch, but renters usually earn less than home owners.

“Renters relying on benefits have seen their housing support frozen at 2019 rent levels, while rents have spiralled out of reach since. Tenants who face eviction because their landlord wants to sell or move back in need better protection from the costs and upheaval of losing their home.

“Longer notice periods proposed by Labour are welcome, but renters also need financial support with moving costs, and measures to encourage landlords to sell with sitting tenants and avoid evicting in the first place.”

A spokesperson for Labour Housing Group, affiliated to the party, said it welcomed Labour plans as “another step towards helping families in this cost-of-living crisis”. They also highlighted support for “policies that promise to fix our housing crisis, from increasing the supply of housing to examining funding regimes to make houses more affordable”.

Tory economic chaos is “endangering” families’ right to a safe, secure, affordable home, they added.

Soaring inflation

Labour’s intervention follows official figures on Wednesday showed inflation holding steady at 8.7% in the year to May, raising investor and political pressure on the Bank of England to raise interest rates further to rein in price hikes, with the Bank set to make its next decision on rates on Thursday.

Reuters reported that financial markets began betting on further interest rate rises by the central bank after the inflation figures were published, which would mark a further blow for homeowners as many mortgage rates closely track the Bank’s rate.

Responding to the inflation figures, Reeves argued that the government “can’t get a grip of this problem because they are the problem”, adding: “Simply continuing on this Tory path of managed decline is not the summit of Labour’s ambition.

“We need a more secure economy, more secure family finances and a plan to help us grab hold of the opportunities before us. With a relentless focus on the cost of living, our strong fiscal rules and our mission for growth, that is what a Labour government will bring.”

Also commenting on the figures, backbench Labour MP Richard Burgon called for price caps on rent, food and other essentials as part of a “real strategy to tackle inflation” rather than further interest rate hikes.

A Downing Street spokesperson said on Wednesday the chancellor wanted banks to offer “the best possible products”, according to the Guardian. A Conservative spokesperson told The TImes Reeves was looking for “easy answers” rather than taking the “difficult action” to tackle inflation, which ministers have stressed as their key priority in tackling rising living costs.