Sadiq Khan calls on Government to provide further household support amid expected ‘wave of repossessions’

The mayor of London, Sadiq Khan, has called on the government to “step up with emergency support for households” amid rising mortgage rates and financial stress on homeowners.

In a letter sent jointly to the Chancellor Jeremy Hunt and Housing Secretary Michael Gove, Mr Khan urged the pair to work with lenders at this Friday’s mortgage “summit” and deliver a series of measures to help those struggling with their payments.

Recent data has shown the average two-year fixed mortgage is now above 6%, up from 2.25% in October 2021, resulting in huge hikes for those on low rates who are having to re-mortgage.

According to City Hall, a Londoner with a £350,000 mortgage coming to the end of a 2.5% fixed term deal may see their monthly costs increase from £1,570 to £2,255, if re-mortgaging at 6%.

Mr Khan was writing even before the Bank of England, as expected, raised interest rates. On Thursday the country’s central bank opted for a 0.5% increase to 5% - rather than the more tentative increase to 4.75% that some had predicted - in a bid to tackle inflation, currently sitting at 8.7%.

In his letter, Mr Khan wrote: “I’m writing to you about rising interest rates and the dismay and anxiety being felt by London homeowners concerned at the impact on rising mortgage costs. I know we share concerns about the impact of inflation on household budgets, but ordinary homeowners cannot be expected to pay the price for macroeconomic turbulence.

“Some Londoners are now at serious risk of losing their homes, causing huge stress and anxiety for many households in the capital. Mortgage rates are now routinely in excess of 6%. Homeowners coming to the end of fixed-rate deals face exorbitant increases in their monthly outgoings, and it is sadly inevitable that many people will be unable to manage the jump in payments. Without support there is a risk of rising arrears and ultimately, a wave of repossessions.”

The mayor has asked the government to work with lenders to introduce a series of measures, such as flexible mortgage agreements and implementing a two-year voluntary moratorium on repossessions, as well as direct government interventions, namely providing access to timely advice, supporting low-income homeowners to bridge the gap between costs and incomes, and relaunching the Mortgage Rescue Scheme.

Mr Khan’s comments came as Labour announced it would force banks to help homeowners struggling with payments, with shadow chancellor Rachel Reeves saying borrowers should be allowed to switch to interest-only payments on a temporary basis.

A Treasury spokesperson said: “We know this is a concerning time for mortgage holders. Lenders are already required to engage individually with their customers who are struggling to provide support that is tailored to their circumstances.

“Support could include extending a person’s mortgage term to reduce monthly payments, offering a switch to interest only payments, payment deferrals, rate discounts, or part interest-part repayment.”

The Department for Levelling Up, Housing and Communities has been approached for comment.

Why is there a mortgage crisis in London?

As with all crises, the factors leading to the current issues with mortgages are multifaceted.

According to David Hollingworth at L&C Mortgages, the combination of record-high property prices and rapidly increasing mortgage rates has created a perfect storm in the capital.

“Property prices in London will have been the most challenging for many borrowers in recent years and will mean that many have taken sizeable mortgages. In a super low-rate environment that may have looked like a very manageable monthly payment but, like all borrowers, Londoners will now be faced with the prospect of a radically different rate environment,” he said.

Paula Higgins, chief executive at the HomeOwners Alliance, adds that during the post-lockdown property boom of 2021, government incentives such as the stamp duty holiday encouraged people to get a mortgage and buy homes.

She said: “But as homeowners emerge from deals secured at that time - including a two-year fixed rate at 0.79% - they’re in for a very real shock as average mortgage rates have now hit 6% for a two-year fixed rate.

“Government should work closely with lenders to ensure they are fulfilling their duty of care by proactively helping their customers who may be struggling to meet payments. There are creative ways to do this, for example by offering a longer mortgage term or interest-only payments, but not at the detriment of a poor credit rating that will affect them for years later.”

For those struggling to meet their mortgage payments, Ms Higgins said: "Despite the overwhelming feeling of being in financial free-fall at this time, homeowners need to take control. Just one missed mortgage payment could affect your ability to borrow money from any lenders in future. So if you’re worried, speak to your lender. They may be able to:

• Extend your mortgage term, for example from 20 to 25 years, so you can pay less each month (although you’ll pay more interest overall)

• Reduce your monthly payments for a set period of time, while you sort out your finances 

• Offer a mortgage holiday. This is when you take a break from repaying your mortgage, although interest continues to accrue during this time.   

• Switch to interest-only repayments. This means only paying off the monthly interest owed on your debt and not any of the capital; it would cut your monthly mortgage payments but you’ll need to have a plan for how you will eventually repay the capital.” 

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