Liberal Democrats: emergency mortgage protection fund needed
Sir Ed Davey, leader of the Liberal Democrats, is calling for a £3bn emergency mortgage protection fund to protect people who would otherwise be repossessed.
Speaking on Radio 4’s Today programme, Davey says the government should provide the kind of help that was available after the last financial crisis.
Davey explains:
We’ve already seen the number of people’s homes been reposessed going up massively – surging by 50% in the latest quarter, and my worry is that we’re going to see lots of other families losing their homes, and we could be in a spiral of repossessions.
The banks have got to play a bigger role. They need to step in and help people who are in trouble.
But just as there was before, there needs to be more protection for those who are really suffering and the government just aren’t doing that.
Q: But this would be regressive – people who don’t own homes shouldn’t support those who do? It would heat up demand, when the Bank of England is trying to cool it, and aren’t there better uses of public money? Plus, lax monetary policy has helped people who own assets…
Davey says the Lib Dems’ proposal is “quite targeted and time-limited” and it will get help to people who would otherwise lose their homes.
If we don’t give that sort of help to those people, you’d see a spiral down and it will hit the whole economy.
He adds that there also needs to be more support for carers, and for renters “who are getting a really poor deal”.
Davey argues that MPs should spend next Monday debating the cost of living crisis, not all day debating Boris Johnson following yesterday’s privileges committee report.
Davey says:
We should spend the day thinking about how we help people, whether it’s the Liberal Democrat idea of a mortgage protection fund, our proposals to help people with energy bills…
We need to help people. Families and pensioners, millions of them are struggling and the Conservatives are just failing because of their chaos.
Q: You’re proposing spending £3bn to help people who borrowed to buy homes, when many people can’t afford to, and younger people are looking forward to a housing crash so they can get onto the housing latter. What does that say about your priorities?
Davey says the Liberal Democrats want to reverse the tax cuts given to the banks in the last few years, and use some of that extra money to help people who would otherwise lose their homes.
This isn’t their only policy, he points out – citing the need to invest in the health service so the UK has enough GPs, and to tackle the wider cost of living crisis.
But if we don’t tackle the mortgage crisis, it’s going to see a spiral downwards.
Key events
The jump in mortgage rates could cause some housebuyers to pull out of deals, in the hope of cheaper borrowing in the autumn, predicts Richard Donnell, director of research and insight at Zoopla.
Donnell says:
“Rising mortgage rates will hit the buying power of new buyers who don’t have a mortgage arranged. Those that have got offers locked in at closer to 4% will most likely push ahead with purchases where they feel secure in their work and/or need to move for job or family reasons.
“Those who were going to move but for less needs-based reasons may look to pull out of deals and wait over the summer.
“For those with a home and re-mortgaging, there will be a jump in mortgage costs as people move from sub-2% or 3% to 5% mortgage rates.
Some homeowners may have to look to extend mortgage terms by two to five years to reduce the increase in repayments, Donnell says, adding:
This is a solution but comes with the cost of paying more interest to the bank.”
Bad news for mortgage holders – French bank BNP Paribas predict UK interest rates will rise by a whole percentage point before the end of the year.
Their Markets / Credit 360 team say:
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We expect the Bank of England to hike rates by 25bp at its meeting on 22 June while leaving its conditional forward guidance unchanged.
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At face value, this could seem too tepid for a central bank that is facing a significant problem of underlying inflationary pressures.
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However, we think the language of the minutes, and likely subsequent communications, will reaffirm the MPC’s decisiveness to act and suggest that further tightening is in the offing.
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Indeed, we expect the MPC to hike by a cumulative 100bp to take Bank Rate to a terminal level of 5.50% by November.
The UK’s railway regulator is examining whether customers are being ripped off when they buy food and drink at railway stations.
The Office of Rail and Road (ORR) has launched a market study into railway station catering today, to examine if customers are losing out to excessively high prices.
Grahame Horgan, ORR’s head of competition, said:
“As consumers across the country are affected by the rising cost of living, we want to ensure that passengers are getting affordable food and beverages when using station facilities.
It is important that the railway industry gives consumers good value for money and improves their journey experience.”
Matt Smith, Rightmove’s mortgage expert, says:
“It’s been a volatile couple of weeks for the mortgage market and we’ve continued to see average fixed rates creep up this week in both two-year and five-year fixed deals.
“The average rate for a five-year fixed, 85% loan-to-value (LTV) mortgage is now 5.24%, having been 5.20% earlier this week and 5.16% this time last week.
“This equates to a £15 per month increase for someone taking out this kind of mortgage now rather than last week based on the current average asking price for a home. Next week’s inflation figures and Bank of England base rate decision will be really key for setting the tone for the mortgage market over the coming weeks.”
Global shares have risen 14-month highs today, Reuters reports, as investors took the view that the Federal Reserve may not need to raise rates much more.
The MSCI All-World index has gained 0.2% to around its highest since mid-April 2022, following the Fed’s decision to leave interest rates on hold on Wednesday.
Philip Shaw of Investec predicts the Bank of England will raise interest rates to a peak of 5.25% this autumn.
That will start with a quarter-point rise to 4.75% next Thursday, Shaw forecasts, adding that the outlook for rates further ahead looks exceptionally hazy.
He says:
However our conclusion is that in addition to next week, the MPC will raise the Bank rate in August and September resulting in a terminal rate of 5.25%.
Previously we had expected the Bank rate to peak at 4.75%.
Our baseline case is that rates will not rise as far as 6%, but policymakers are currently in a state of heightened data dependency and we note that that significant risks exist in both directions. If we are correct about a household consumption-led slowdown, interest rates could come down in 2024 but this seems more likely to take place in Q2 rather than Q1.
Odey Asset Management has suspended trading in a fourth fund following a “sizeable level” of withdrawal requests, as sexual misconduct allegations against founder Crispin Odey continue to rock the company.
The firm said in a letter to investors on Friday that it was temporarily suspending trading in its $80mn Special Situations fund to sell assets in an “orderly fashion” to meet the redemptions, the Financial Times reports.
It emerged yesterday that OAM is to be broken up, one week after multimillionaire Conservative and Brexit donor Odey was accused of sexual misconduct by junior female members of staff.
Odey Asset Management (OAM), the £3.5bn hedge fund Odey founded 32 years ago, announced on Thursday it was in “advanced discussions for rehousing funds and transferring certain fund management activities and individuals to other asset managers”.
Buying agent Henry Pryor argues that the UK government will resist calls to support mortgage-holders, as it would undermine the Bank of England’s efforts:
Seems to me that raising base rates & therefore mortgage rates is how @bankofengland dampens consumer spending to tame inflation. It’s a deliberate policy & therefore unlikely Govt. will offer support for mortgage holders who suffer as a result. pic.twitter.com/kWa2qoy3ZV
— Henry Pryor (@HenryPryor) June 16, 2023
Sterling on track for biggest weekly rise of 2023
Not only has the pound hit a one-year high, it’s on track for its best week of 2023.
Sterling has gained 2.2 cents. or 1.75%, against the US dollar so far this week to around $1.28.
That would be its best week since November 2022, lifted by expectations that UK interest rates will keep rising to squeeze out inflation.
Sarah Butler
The boss of Tesco said food inflation has probably peaked but warned that prices were likely to stay high and urged the government to ease Brexit rules, which are driving up the cost of importing groceries.
