Yahoo Finance Interest rate rise: Hunt agrees measures with banks after mortgage crisis talks
Chancellor's decision comes after another rate hike by the Bank of England
Chancellor Jeremy Hunt's crisis meeting with banks and building societies to discuss mortgages concluded with an agreement on measures to help borrowers, the Chancellor said on Friday.
Hunt had called together UK lenders to hash out the chaos currently playing out in mortgage markets.
He said that lenders had agreed to allow borrowers to extend the term of their mortgages or move to an interest-only plan temporarily.
NatWest's managing director Alison Rose, Lloyds CEO Charlie Nunn, Barclays UK's Matt Hammerstein, Virgin Money's David Duffy and Nationwide's Debbie Crosbie were among attendees.
Hunt said they agreed to implementing a 12-month minimum before repossessing homes.
The Chancellor told broadcasters that they are most concerned about families who could lose their homes and those whose payments could soar as their fixed-term rates come to an end, according to a report by PA Media.
Anxiety reached fever pitch in the housing market following an interest rate hike by the Bank of England on Thursday. Rates were increased from 4.5% to 5% in order to attempt to contain inflation.
Now, the government and banks are in the spotlight with calls to help ordinary people fight the knock-on costs.
Prime minister Rishi Sunak and Hunt had previously said the government would not step in and help. Sunak said the government would "stick to its plan" to fight inflation.
Some topics which are likely to be put on the table in discussions on Friday are how more flexibility can be given to consumers as existing mortgage deals change, helping those on benefits, and giving people temporary respite from payments without affecting their future ability to borrow.
Read more: When will the UK’s mortgage misery end?
The National Residential Landlords Association has asked for more aggressive action to combat the impact, asking for the reintroduction of mortgage interest relief and the unfreezing of housing benefit rates.
Here's the state of play so far in the mortgage market:
HSBC
HSBC (HSBA.L) shifted its mortgage rates twice over the last few weeks, pulling some deals as demand surged ahead of the Bank of England's announcement.
The bank said this was “to ensure that [it] can stay within operational capacity and meet customer service commitments.”
This Friday, the bank had a two-year fixed standard deal that came with an initial interest rate of 5.29% fixed until August 2025, followed by a variable rate "currently" at 6.99%.
For the same deal but for three years, the initial interest rate stands at 5.04% before jumping to the variable rate of 6.99%.
Read more: Interest Rates: Why the Bank of England may have to create a recession
For five years, prospective homebuyers can get a fixed rate of 4.89% before seeing it surge to a variable rate which, again, currently sits at 6.99%. All the above options are for 60% loan-to-value (LTV) deals.
A fixed-rate mortgage means that your payments will stay the same until the end date of the fixed-rate period, even if interest rates change.
The last time HSBC withdrew from the mortgage market temporarily was in the aftermath of Liz Truss's mini-budget in September, which was disastrous for the UK economy.
Nationwide
Nationwide (NBS.L), Britain's largest building society, is also set to hike some fixed mortgage rates for new borrowers. It said it needed to increase fixed rates to ensure prices remain sustainable.
Mortgage rates will rise in line with the base rate on 1 August, according to its website.
Nationwide previously increased selected fixed-rate deals for new borrowing, too, while it reduced some rates on tracker mortgages. On Friday, it implemented increases of 0.7 percentage points.
Read more: Bank of England hikes UK interest rates to 5% to combat sticky inflation
Someone looking to get a mortgage from Nationwide for a £350,000 property, assuming a £90,000 deposit to ensure a 75% LTV, is looking at an initial rate of 4.94% on a two-year tracker. This would ensure an £849 mortgage for 24 months. After that, the variable rate at the bank is currently at 7.99%, meaning the mortgage monthly payments would rise to £1,159.53.
A mortgage of £173,949.00 over a term of 31 years on an initial two-year fixed rate at 4.74% (fixed) would require 24 monthly payments of £893.18 and 348 monthly payments of £1,217.95 based on our Standard Mortgage Rate currently 7.74% (variable).
Lloyds
An analysis by the i newspaper found Lloyds (LLOY.L) has passed on costs of a mortgage rate hike in full to its customers, with the bank refusing to rule out future changes.
Last month, the bank warned of a jump in mortgage arrears as interest rates crept up.
A £350,000 house with a £90,000 deposit at Lloyds would secure a 25-year mortgage at at initial rate of 6.11% for those going for a two-year fixed rate and 5.64% if choosing to for a five-year deal. This would bring monthly mortgage payments to £1577 and £1499 respectively.
Read more: Bank of England interest rate hike sparks pound and gilts volatility
After the initial period of fixed rates, all of Lloyds mortgages will revert to the current variable rate of 7.99%.
A five-year fixed rate deal would see an initial rate of 4.89% being charged before going up to again a variable rate of 7.99%.
Halifax and TSB
Halifax Intermediaries also upped fixed rates about two weeks ago, with an increase of 0.82 percentage points.
To get a two-year fixed rate mortgage with the same terms as above (£350,000 property), the initial rate is 5.36%. After August 2025, the variable rate of 7.99% kicks in.
Meanwhile TSB has said it is hiking rates by up to 0.75%.
Barclays
Barclays (BARC.L) CEO CS Venkatakrishnan said recently that homeowners and renters are set for a "huge income shock" due to rate rises. He estimated that payments by mortgage holders and tenants will take a chunk of between 28% and 30% out of their income, compared with 20% in previous years.
At the start of June the bank raised its rates, with the UK Residential SVR increasing from 7.74% to 7.99% and the UK BTL SVR will increasing from 8.74% to 8.99%.
The bank has moved to pass the full rate rise onto its customers.
For a two-year fixed mortgage, prospective borrowers are looking at 5.59% for an initial rate before the 7.99% variable rate kicks in.
Read more: Mortgage costs driving buyers to 35-year loans to keep payments affordable
For a five-year fixed mortgage, future homeowners are currently looking at a 4.99% fixed rate for an LTV of 75% and a variable rate of 7.99%.
On its website, the bank gave a mortgage example that shows how much UK households are paying because of rising interest rates.
"A capital and interest mortgage of £200,000 payable over 300 months on a fixed rate of 5.98% for two years and then our variable tracker rate of 3.49% above the Bank of England Base Rate (currently 4.50%), for the remaining term would require 24 monthly payments of £1286.16 and 276 monthly payments of £1527.25.
"The total amount payable would be £452,503.84 made up of the loan amount plus interest and £0 (product fee), £80 (final repayment charge), £35 (completion fee)."
Put it simply, you ask the bank for £200,000 and end up paying over double that because of interest.
Watch: How does inflation affect interest rates?
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