UK banks call on chancellor to extend mortgage guarantee programme

Britain’s biggest banks have pressed the chancellor over a potential extension of the government’s mortgage guarantee programme amid surging interest rates.

During a meeting with Chancellor Kwasi Kwarteng on Thursday, senior executives at high street lenders and building societies discussed how they could better protect mortgage-holders and the most vulnerable customers.

The banks asked Mr Kwarteng to consider extending the mortgage guarantee programme, which protects lenders against losses when lending to first-time buyers, the PA news agency reported.

The programme is designed to help creditworthy households who are struggling to save for higher mortgage deposits get on the housing ladder by compensating lenders for a portion of any losses on defaults.

Several high street banks have been part of the programme, but it is due to come to an end in December.

Britain’s biggest building society, Nationwide, had never joined the government programme and launched its own support measures for first-time buyers with smaller deposits.

Bank chiefs also spoke to the chancellor about how mortgage-holders can be better protected at a time when interest rates are rising.

How to prepare for a recession — video

PA reported that Consumer Duty rules of the Financial Conduct Authority (FCA) were raised in the meeting, which require firms to end rip-off charges and fees and give customers information that is easier to understand and support when it is needed.

The financial watchdog had announced the plans in July and given financial services companies 12 months to enact new rules that are designed to better protect vulnerable customers.

However, banks have been battling against market volatility and swap rates — which mortgage pricing is based on — increasing at unprecedented levels in response to the current economic conditions.

The rate on a typical five-year fixed mortgage surged past 6 per cent for the first time in 12 years on Thursday.

And on Wednesday, the two-year fixed-rate mortgage also breached 6 per cent for the first time in 14 years.

HSBC, Santander and Virgin Money are among the lending companies that have withdrawn products from the market for new borrowers since the government unveiled its mini-budget that prompted turmoil in the financial markets.

Bank of England raises interest rates by biggest margin in 27 years — video

The topic of MREL was also reportedly raised — referring to the minimum requirement for own funds and eligible liabilities, a post-2008 financial crisis measure that was brought in to protect customers against the collapse of smaller banks.

Some experts have debated the possibility that the MREL requirements stifle growth, particularly among challenger banks, and need to be reformed.

It comes amid growing concerns that lenders could be hit by a wave of homeowners defaulting on their mortgages, leaving them with bigger debts on their balance sheets.

Prime Minister Liz Truss repeated her claim that global factors are ultimately to blame for rising interest rates.

Speaking to broadcasters at the European Political Community in Prague, Ms Truss was asked about rising mortgage rates, a credit-rating agency downgrading the UK and the Bank of England’s description of the chancellor’s role in contributing to recent market issues.

“We’re facing a very, very difficult economic situation. We have rising energy prices and we have rising interest rates around the world. The [US] Federal Reserve has raised its interest rates to 4 per cent,” said Ms Truss.

“What we’re doing as a government is first of all making sure that people aren’t facing gargantuan energy bills this winter. People were facing bills of up to £6,000 [$6,700].

“We’re now making sure that the typical household doesn’t pay more than £2,500. We’re also reducing people’s taxes, helping grow the economy, but of course, these are difficult times.

“And that’s why it’s important I’m here in Prague making sure we’re working with our international partners to deal with these very real issues which ultimately have been caused by [Russian President Vladimir] Putin’s war in Ukraine.”