Britain is heading for a “mortgage catastrophe”, a Tory MP has warned, amid growing calls for the Bank of England to pause interest rate rises.
Lucy Allan criticised the “complacency” of the Bank, saying that if it continued to put up interest rates thousands would be forced to sell their homes.
But Michael Gove, the Levelling Up Secretary, said that while the Government would keep the issue under review, there were no plans for cash help for struggling homeowners.
The Treasury said such a move would be dangerous, with a source saying such a move would be “self-defeating” as it would push up inflation and could see interest rates increase even further.
Interest rates have doubled since Russia’s invasion of Ukraine and now stand at 4.5 per cent.
The Bank of England will meet on Thursday and is widely expected to put them up by a further 0.25 points.
Observers warn interest rates could exceed 6 per cent by the end of the year.
Ms Allan, Tory MP for Telford, said on her website that she did not believe high mortgages were a price worth paying to bring inflation down.
“This is a mortgage catastrophe staring us in the face,” she said.
“While I will still tell my constituents to speak to their lender and get debt advice from the Citizens’ Advice Bureau, if I were their financial adviser, my advice would be: sell now, while you still can, it’s only going to get worse.”
Short-term relief ‘worst thing to do’
Sir Howard Davies, the former chairman of the Bank, said on Sunday there was a case for keeping interest rates as they are, because previous rate rises may not yet have fed through to the economy.
He told the BBC: “In the past when we’ve had significant rises in interest rates - say, before the last financial crisis, 04, 05, 06 - the mortgage market in this country then was largely variable rate.
“So when the interest rate went up, by the end of the following month everybody was paying more on their mortgages.
“Now we have a mortgage market where most people are on fixed rate.
“And therefore, when you put up interest rates, for a while you don’t have much impact, because you only have an impact on the small number of people paying variable rate, and on the people whose fixed rates just happen to come up at that point for renewal.”
He added: “So it’s arguable that the interest rate rises that we’ve already seen have not yet fed fully through into the impact on consumer spending.
“That I think is probably at the core of the argument why you could say that the Bank of England should wait a bit and see what happens when the full effect of this has gone through.”
However, he said his personal view was that interest rates should probably continue to rise “a bit more” in order to offset inflation.
Mr Gove said on Sunday that if public money is spent to “deal with particular crises” then “you are inevitably adding to the stock of public debt”, which puts pressure on interest rates.
He added: “The worst thing to do would be to spend money to provide a short-term relief which would then mean that our overall finances were in a weaker position, and interest rates were higher for longer, and inflation was higher for longer.”
‘Risky territory’
The Treasury has ruled out any direct fiscal support for mortgage holders, but is looking at other ways to help those in distress.
Jeremy Hunt, the Chancellor, has urged lenders to do more to help borrowers in difficulty.
A Treasury source said: “The single most effective policy to help mortgage holders is to bear down on inflation, thereby limiting interest rate rises.
“Borrowing money to subsidise mortgages risks fuelling inflation further, forcing the Bank of England to respond with even higher interest rates. It would be totally self defeating.”
Sir Charlie Bean, a former Bank of England governor, said it would be “risky” for the Government to protect mortgage holders against rising interest rates.
“There’s not a lot [the Government] can do to influence the overall macro environment in a favourable way,” he told Sky News.
“There may be things it wants to do to alleviate pain on particular parts of the population, poor households or whatever.
“There obviously have been some calls for protecting those with mortgages.
“I think that’s risky territory to get into because of course, if you do that and reduce the pressures on those with mortgages, that reduces the extent to which the economy slows and just means the bank has to raise interest rates even more.”
https://news.google.com/rss/articles/CBMiZWh0dHBzOi8vd3d3LnRlbGVncmFwaC5jby51ay9uZXdzLzIwMjMvMDYvMTgvdG9yeS1tcC1sdWN5LWFsbGFuLW1vcnRnYWdlLWNhdGFzdHJvcGhlLXdhcm5pbmctdHJlYXN1cnkv0gEA?oc=5
2023-06-18 20:28:00Z
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