Millions facing insolvency due to mortgage crisis.

The finance minister of Britain, Jeremy Hunt, has warned of the possibility of a “mortgage catastrophe” or crisis, which has put more pressure on the government.

The government is expected to do more to help struggling households, as millions of homes are at risk of insolvency. The discussion about a mortgage catastrophe began after the Bank of England (BoE) increased interest rates by 50 basis points to 5%. This increase was much larger than expected.

This was the 13th consecutive interest rate hike by the BoE and the base rate has now reached its highest level since 2018. Although it was introduced to reduce inflation, it will have a negative impact on many homeowners as the interest rates on many mortgages in the United Kingdom are directly linked to the central bank’s base rate.

Renters may also be required to pay more, as buy-to-let landlords are likely to pass on higher mortgage repayments to their tenants. According to research from the National Institute of Economic and Social Research (NIESR), around 1.2 million UK households, which represents 4% of all households in Britain, will have depleted their savings by the end of the year due to high mortgage repayments.

If this happens, the percentage of households in insolvency will rise to about 30%. The areas with the highest impact will be Wales and northeast England, according to the NIESR research. Max Mosley, an economist at NIESR, said that the government should not expect certain households to withstand the impact of the interest rate hike.

“The rise in interest rates to 5% will push millions of households with mortgages towards the brink of insolvency,” said Mosley. “No lender would expect a household to withstand a shock of this magnitude, so the government shouldn’t either.”

Mortgage Crisis: Lenders and Banks Agree on Solutions

Despite this situation, Hunt met with top banks and building societies to discuss the mortgage repayment crisis. During the meeting held on Friday, June 23rd, banks, mortgage lenders, and the Financial Conduct Authority agreed on three measures to salvage the situation.

One of the measures is a temporary change to mortgage terms, and a promise that consumers’ credit scores will not be affected by discussions with their lenders.

A grace period of 12 months was agreed upon by lenders for those households that stand the chance of losing their homes. After this time, there will be a repossession without consent. The finance minister is positive that these measures will provide comfort to the affected homes and give them ample time to come to a resolution.

“We won’t flinch in our resolve because we know that getting rid of high inflation from our economy is the only way that we can ultimately relieve pressure on family finances and businesses,” said Hunt.