Interest rates: Force banks to offer mortgage help, says Labour

The government should force banks to help homeowners struggling with mortgage payments, Labour has said.

Shadow Chancellor Rachel Reeves says borrowers should be allowed to switch to interest-only payments for a temporary period to ease the crisis.

Many lenders are already offering this after talks last year with the government, but Labour says it needs to be enforced across the board.

It comes ahead of an expected rise in interest rates on Thursday.

Shadow Chancellor Rachel Reeves said their plan "to ease the Tory mortgage penalty offers practical help now, while our commitment to fiscal responsibility and growth will secure our economy for the future.

"With food and energy prices so high, higher mortgages are the last thing families need."

Chancellor Jeremy Hunt is meeting bank chiefs again on Friday to see what additional help they can give.

He is coming under pressure for the government to step in with Covid-style financial help for households.

He told the MPs: "Those kind of schemes, which involve injecting large amounts of cash into the economy, would be inflationary."

The government has also rejected a Liberal Democrat plan for grants of £300 a month for struggling homeowners, to be funded by a windfall tax on the banks.

Downing Street insists Rishi Sunak is on course to meet his target of halving inflation 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."

The Bank of England is widely expected to increase interest rates by 0.25% to 4.75% at 1200 BST on Thursday, although some analysts have suggested the base rate could go up to 5%. Rising rates mean homeowners are facing big increases in mortgage payments.

Labour has ruled out cash handouts or loans for mortgage payers if it wins power at the next election.

On Wednesday, shadow chief Treasury secretary Pat McFadden told the BBC: "The public finances are stretched right now and we have to be honest with the public that we can't always respond with a big injection of state support."

But Labour has set out what it says the government can do now to ease the crisis.

The 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.

In a statement, UK Finance, which represents the banking and finance industry, said: "Over the last year, lenders have helped nearly 200,000 borrowers who cannot meet their full mortgage payments by providing tailored forbearance.

"This could be a period of reduced payments, a period of zero payments or a temporary switch to interest-only.

"Contacting your lender to find out the options available won't impact your credit score, but missing payments will."