Earlier today, James Wild MP spoke in a mortgages debate regarding current interest rates and new support available through the Mortgage Charter.
Text of speech
It was Margaret Thatcher who said that “inflation is the biggest destroyer of all—of industry, of jobs, of savings”.
As ever, she was right. That is why the Prime Minister put halving inflation as his top priority at the beginning of this year, along with growing the economy, because if inflation is not squeezed out of the system, everyone will become poorer.
Like central banks across the world, the Bank of England is raising interest rates to combat high inflation, and it is worth noting that rates are actually higher in the United States, Canada and New Zealand. However, the combination of high inflation and interest rates means that people are facing higher mortgage payments, which is causing concern for my constituents. In North West Norfolk, 24% of homes are owned with a mortgage or loan, compared with a national average of 30%—I declare an interest as one of those homeowners—and those families facing higher monthly payments are having to make difficult choices about their household spending, as indeed are people who are renting. That is why the Government are right to have put in place £94 billion-worth of support, a package worth on average £3,500 per household—one of the most comprehensive in Europe.
However, it is equally the case that the Government should not take action that would add to inflationary pressure: for example, by borrowing an extra £28 billion each and every year, as the Opposition are committed to do. The Institute for Fiscal Studies has said that the effect of such action would be to increase inflation and drive interest rates even higher. That is the damaging reality that Labour’s plan would lead to. Instead, along with the cost of living support package—I welcome today’s news that 95% of the disability payments have already been made—we need to take action to ensure that banks and building societies treat people fairly and introduce new protections.
As such, I support the measures in the new mortgage charter. It will help people who are worried about making their monthly mortgage payments by adding an option to switch temporarily to an interest-only mortgage, or to extend the term in order to reduce their monthly payments. The Chancellor gave the example that on a £200,000 mortgage that could lead to a saving of £350 a month, which is material. Importantly, people will be able to switch back to their original term within six months.
People who are approaching the end of a fixed-rate deal will of course be concerned about the rates in the market. Those people will have the opportunity to lock into a rate earlier, and then to change that at any point up to the new deal coming into effect. We have heard about repossessions. Where constituents have fallen behind with mortgage payments, it is incredibly worrying for them to think that they might lose their home. There are already strong protections in place to ensure that that is an absolute last resort, but in the current circumstances it is right to strengthen those protections. Now there will be a minimum period of 12 months from the first missed payment before any such action can be taken—double the period that the Labour party has proposed.
We in this House should be responsible and offer practical support, and the best advice for anyone who is worried about meeting their payments is to talk to their lender. Two weeks ago, I was in my local branch of the Nationwide building society, talking to the team there about the cost of living advice that they are giving to help my constituents. I welcome the fact that Nationwide is one of the lenders that has signed up to the charter.
I hope that the rest of the market will also do so and, importantly, will tell customers about the new flexibilities, in order to reduce any concerns they might have.
Curbing inflation is not easy, but it is vital to relieve pressure on family budgets. In his column in The Sunday Times this weekend, the respected commentator David Smith looked at the prospects for inflation and the need for monthly consumer prices index increases to be smaller than a year earlier. He pointed out that from May to December last year, CPI rose by 4.7%, driven by higher energy costs caused by the illegal war in Ukraine. In the year prior to the pandemic, the increase in the same period was just 0.6%. He noted that a rise of just under 2% in CPI from now until December would deliver an inflation rate of 5% by the end of the year. I hope he is right, because getting inflation down must be the priority, and the target remains to halve it by the end of the year. That is what businesses and families want.
Throughout covid, the Government supported people, and in the face of current higher costs, support for the most vulnerable continues. Now, with the additional measures in the charter, people will see their mortgages better protected in the face of higher interest rates. That is the practical action that this Government are taking. The alternative put forward by the Opposition parties—more borrowing and more spending—would simply make inflation higher and everyone poorer.
