Shadow Chancellor Rachel Reeves has said that mortgage lenders must provide support to people struggling with their payments. Many lenders are already offering this but Labour says it needs to be enforced nationally by the Government. This comes as interest rates are set to rise for 13th time in a row this afternoon.
On Wednesday, the Office for National Statistics said that inflation was unchanged on the previous month at 8.7%. That was met with surprise by analysts who had expected it to fall. Consequently, the Bank of England is expected to raise interest rates for a 13th consecutive time as it tries to tackle rising prices. This is to be confirmed today after a meeting of the Bank’s Monetary Policy Committee, which makes the decision independently of government.
Interest rates remain the Banks primary tool to lower inflation, despite debate over its effectiveness. Analysts say an increase to 4.75% is most likely, but a bigger increase to 5% remains a possibility, although one economist suggested such a rise could suggest the Bank has “completely lost control of inflation”.
The Bank rate is already at its highest level for about 15 years, rising consistently since December 2021 in response to the soaring cost of living. The theory is that raising interest rates makes it more expensive to borrow money, meaning people have less to spend, and so bringing down demand and therefore easing price rises.
Labour’s plan includes guaranteeing that relief measures such as temporary interest-only payments and extending the time period for paying back mortgages are available. The party is also calling for a six-month grace period for homeowners threatened with repossession as well as guarantees that credit scores will not be affected by asking for help. Labour says the government should order regulator the Financial Conduct Authority to require lenders to offer all these options.
However, despite Labour’s call for supporting those unable to make mortgage payments, Rachel Reeves said major financial support for mortgages was not a good idea as this could fuel price rises. She said “a big fiscal injection of cash into the economy, especially an untargeted injection, would not be the right approach”.
Chancellor Jeremy Hunt is meeting bank chiefs again on Friday to see what additional help they can give. He has already urged lenders to offer the measures which Labour wants to make mandatory. Downing Street insists Rishi Sunak is on course to meet his target of halving inflation – the rate prices are rising – this year, even though the rate remains stubbornly high at 8.7%. Speaking at an event on Thursday, the prime minister is expected to say he feels a “deep moral responsibility” to lower inflation, adding: “I’m completely confident that if we hold our nerve, we can do so.”
Although inflation is not rising, the rate at which it remains is still negatively impacting people and has been for too long. The Government must do more to shield the population from financial burden as increasing interest rates continue to harm those with mortgages.