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Sir Keir Starmer has ruled out Labour backing plans that would see subsidies or financial support for mortgage holders, as struggling homeowners brace for another interest rate rise.
The Bank of England on Thursday raised interest rates to 5% from 4.5% amid persistently high inflation, in a move that will pile further pressure on mortgage holders.
Speaking ahead of the hike, the Labour leader said that “next month it’s going to feel a lot worse” for millions of homeowners.
But he told the Times CEO summit in London that “there are problems” with the Liberal Democrats’ call for an emergency mortgage protection fund paid for by a reversal of tax cuts for big banks.
The Labour leader laid out his party’s plan to provide “practical support” to mortgage-holders, including requiring lenders to allow mortgage-holders to go interest-only or lengthen the period of their mortgage or reverse it.
“There’s no answer to this that doesn’t go with economic stability.”
In a speech to business leaders at the summit, Sir Keir said the UK is “not well prepared to deal with a new age of insecurity” as he set out Labour’s plans to address this, including an industrial strategy with a “government that gets involved”.
Asked whether the expected rate hike would affect his household, Sir Keir said: “Yes, it will affect our mortgage, it has already affected our mortgage in the last 12 months. So we will see that go up.”
He said that will be a “shared experience” and that it is “a real problem” for those struggling to make ends meet.
“Next month is going to feel a lot worse than it feels now, and as many people have said to me, if you’ve got only the mortgage going up, that might be bearable, but it’s alongside the energy bills going up, the food bill going up.”
He said that despite assumptions Labour could profit politically from the dire economic situation, it is a “genuinely difficult place for the opposition” because “I don’t want to see that pain” felt by working people and families across the country.
Instead of fiscal intervention, Labour’s plan would see banks forced to help mortgage holders struggling with payments, with the opposition urging the Government to compel lenders to allow borrowers to temporarily switch to interest-only payments or lengthen their mortgage period.
Banks would also have to wait at least six months before starting repossession proceedings as part of the party’s five-point plan amid growing pressure on the Government to respond to the crisis.
Earlier, shadow chancellor Rachel Reeves said measures proposed by the Lib Dems could worsen the fiscal situation.
“I recognise the challenge of inflation, and a big fiscal injection of cash into the economy, especially an untargeted injection, would not be the right approach,” she told BBC Radio 4’s Today programme.
“What I would be doing if I was chancellor is I would be helping people who are struggling with those higher costs,” Ms Reeves said.
“There’s different ways you can do that but actually helping people by properly taxing the energy companies and using that money to help people with their bills is a practical thing the Government can still do.
She insisted that such support could help bring down inflation, telling the BBC “if you were to freeze bills for example or reduce them, that does directly impact inflation”.
“But the point is, however, you use that money from the windfall tax you could use it to shield people from those higher prices and similarly what I’m setting out today, my five-point plan to help people with mortgages, is about helping people with those higher costs.”
Annual mortgage repayments are set to rise by £2,900 for the average household remortgaging next year, according to economists at the Resolution Foundation.
With those on variable rate mortgages also being hit, Labour argues the “gap” in rates compared to neighbouring countries is leaving typical households in Britain £1,000 worse off.
Under Labour’s plans for an initial 12 months, the Financial Conduct Authority (FCA) would also be told to issue guidance to prevent the changes affecting credit scores.
Lenders would also be forced to allow any changes to be reversible, unlike under the current situation where borrowers can be trapped in less favourable terms.
Options such as extending a mortgage term can ease homeowners’ monthly payments in the short term.
But they could hit retirement plans or leave borrowers paying the lender more in interest over the course of the mortgage.
Labour said they could achieve the changes through working with the FCA rather than introducing new legislation.
“It’s not urging, it’s an instruction,” Ms Reeves said.
“An instruction that was made during the Covid pandemic via the regulator to say to banks they have to offer these products to people who are in financial difficulties.
She said it was crucial that customers know that if support is sought, “your credit rating is not affected”.
“There are many people who are really worried at the moment about coming forward and identifying themselves as someone who is struggling with their mortgage because they worry that will have knock-on effects on their credit ratings.”
Chancellor Jeremy Hunt will meet lenders on Friday to ask what help they can give to struggling borrowers and see what flexibilities they can offer to those in arrears.
But Downing Street has made clear the Chancellor will not be forcing lenders to take action.
The Conservatives said they had “taken immediate action to support families and to make the mortgage market more flexible”.
“Putting the economy back on the right track is our priority and that is why we committed to halve inflation by the end of the year,” a spokesman said.
“Labour cannot be trusted to take the difficult action necessary, they are always out for easy answers, that is why all they propose are the same old Labour ideas of more spending and borrowing that will increase the rate of inflation and interest rates.”