The Mayor of London, Sadiq Khan, has called for immediate action to protect lower-income homeowners who are increasingly at risk of losing their homes because of rising mortgage costs.
New YouGov polling for City Hall reveals that one in four (26 per cent) of Londoners think they will struggle to meet mortgage payments in the next six months.
The Mayor is calling for the same level of support seen in the aftermath of the global financial crisis, which avoided the high level of home repossessions seen in the early 1990s crash. Inflation is at a 40-year high and interest rates are being raised to the highest level for 14 years, meaning urgent action is needed to protect Londoners from potential homelessness.
City Hall analysis of Bank of England data from 2021, the latest available, suggests that more than half of Londoners who had fixed term mortgages at that time face their deals ending by the end of 2023.
This equates to around 400,000 households who could soon be facing dramatically higher mortgage costs due to increased interest rates. The average rate for a two-year fixed-rate deal rose to 6.53 per cent on 18 October 2022, the highest rate since August 2008.
The Resolution Foundation estimates that the impact of rising interest rates will translate into an additional annual cost of £8000 a year by late 2024 across all households in London whose mortgage costs are going up
The cost-of-living crisis is already fuelling a rise in homelessness in London with the number of people seen sleeping rough in London increasing by a quarter in the last year. More than half of the people spotted sleeping rough were doing so for the first time, amounting to 1,844 people – a rise of 35 per cent on the same period last year.
Sadiq believes this situation is so serious that the Government should now implement measures similar to those put in place following the 2008 financial crisis and at the beginning of the COVID-19 pandemic. As the households affected vary greatly in their circumstances, the Government should:
- Reverse the cuts to the Support for Mortgage Interest scheme – In 2018 this was changed from a grant to an interest-bearing loan and required a nine month wait for those who fall on hard times and need to rely on benefits. The scheme is designed to help protect claimants on qualifying benefits with mortgages from repossession when out of work, retired or sick by contributing towards the interest payments on the claimant’s mortgage and certain home loans. Given the scheme is currently only available to those on certain benefits, as the cost of living crisis worsens, the Mayor believes ministers should also explore making this support available to low-income homeowners not in receipt of benefits but who are now facing unsustainable mortgages payments.
- Reinstate the Mortgage Rescue Scheme in England which was abolished in 2014 and which is currently only available in Scotland (under the title of the Home Owners’ Support Fund) – This scheme targets households within certain income bands and makes two options available: the Mortgage to Rent scheme allows households to stay in their home by selling it to a social landlord and living there as tenants, and through the Mortgage to Shared Equity scheme, the Government buys a stake in the property, which means that households carry on being the owners but they pay a mortgage for a reduced amount.
- Reinstate mortgage payment holidays – Learning from the recent experience of dealing with the financial fall-out from COVID-19, sometimes households need a short-term break from mortgage commitments due to illness, the loss of a job or another sudden change in circumstances. Payment holidays were put in place at the beginning of the pandemic so that households could have the option not to make payments or to make reduced payments for a period of time. The Government should work with lenders to ensure that this is done in such a way that it does not affect people’s credit scores nor future lending decisions.
- Consider reinstating the Homeowners Mortgage Support Scheme to further support struggling homeowners who are not in receipt of benefits – This scheme helped homeowners who were experiencing a temporary reduction in income and struggling to pay their mortgages by allowing them to defer part of their mortgage payments for up to two years. The scheme was launched in the wake of the 2008 financial crisis but ended in 2011.
The Mayor of London, Sadiq Khan said, “Many London homeowners already face sizable monthly mortgage payments, alongside rising costs and stagnant wages. With re-mortgaging rates now hitting levels not seen in more than a decade due to the economic chaos created by this government, it is essential that ministers act to ensure Londoners do not pay the price by losing their homes.
“The measures I’ve set out today would be the right and proportionate approach to tackling a problem that is only going to become more significant and dangerous the longer ministers ignore it.”
Paula Higgins, Chief Executive of HomeOwners Alliance added, “One thing is clear – the shocking mortgage rate trend alongside surging food and energy costs spells a gloomy winter for homeowners, with those on lower-incomes particularly hard hit.
“We need a government plan to support these households coming off fixed-term mortgages and this needs to be communicated sooner rather than later to reduce their financial anxiety. We support the mayor’s call for action and remind homeowners struggling with increased rates that they are not alone.
“Their first port of call should be to speak to their lender about options, such as extending the mortgage term to reduce monthly payments, reducing what you pay for a short period, mortgage holidays or changing temporarily to interest-only payments.”