Banks and building societies are meeting Chancellor Jeremy Hunt as pressure grows on them to help people struggling with rising mortgage costs.
The meeting comes after Thursday's shock decision by the Bank of England to hike rates to 5%, up from 4.5%, as it tries to tackle inflation.
Millions of UK households will see their budgets squeezed as a result.
But Mr Hunt and Prime Minister Rishi Sunak have dismissed suggestions that the government should step in.
After the interest rate rise was announced, Mr Sunak said the government would remain "steadfast and stick to its plan" to bring down inflation.
The chancellor said support for mortgage holders risked stoking inflation, which figures released on Wednesday showed remained stuck at 8.7% in May.
Some, including the National Residential Landlords Association (NRLA), are calling for government action, such as the reintroduction of mortgage interest relief and the unfreezing of housing benefit rates.
However, there are concerns that providing support for borrowers could undermine the Bank of England's battle against inflation.
Tim Pitt, a partner at the consulting firm Flint Global and a former Treasury adviser, said the chancellor should "hold his nerve".
"He needs to not make the Bank's job harder," he told the BBC's Today programme.
Interest rate rises are partly aimed at dampening spending in the economy, by reducing people's disposable income. So providing support would work counter to the Bank of England's policy.
The meeting with banks on Friday was mainly about "the optics", Mr Pitt said, adding he did not expect the government to step in with additional support.
"Ultimately this is mainly about political positioning to make the chancellor look as if he's taking action."
Instead discussions are likely to focus on strengthening existing help for those facing difficulties. Some of the options suggested have been:
- Providing more flexibility for homeowners if they ask for changes to existing deals
- Boosting support for mortgage interest payments for those on benefits
- Allowing people temporary respite from payments without impacting their future ability to borrow
The NRLA warned that interest rates of 5% could force landlords to sell 735,000 rental properties which it said would "exacerbate the ongoing supply and demand crisis across the private rented sector".
Bank of England governor Andrew Bailey admitted on Thursday that the 13th consecutive rise in rates since December 2021 would cause "difficulty and pain" for many. Those with loans would be "understandably worried" he said.
Mortgage rates have been rising for months. An average two-year fixed rate mortgage is currently at 6.19%, while the five-year rate is 5.82%, according to financial data firm Moneyfacts. In June last year those rates were closer to 3%.
The latest move by the Bank of England has yet to filter through into current mortgage rates, according to David Hollingworth from London and Country brokers.
"Fixed rates have not gone into overdrive, they're still moving rapidly but there's no acceleration. We'll see how the markets react in the coming days," he said.
The BBC understands some savings rates have already been put up following Thursday's rate rise. But in recent weeks, MPs have criticised banks for failing to pass rate rises on in full to savers with easy-access accounts.
Harriet Baldwin, chair of the Treasury Committee, told the Today programme that High Street banks had been "incredibly slow" in passing on rate rises.
She said that banks had "taken it for granted that we've got used to not earning anything on savings", adding that savers were "basically being taken advantage of at the moment".
Lenders have been keen to reassure borrowers that they will be able to get loans. Earlier this week Leeds Building Society chief executive Richard Fearon told the BBC the mortgage market remained strong and that "lenders want to lend".
Referring to the financial crash of 2008, he said: "This is nothing like the credit crunch."
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2023-06-23 06:59:06Z
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