The only way to stop the mortgage crisis in Britain is to persuade the banks to pay up.
The big five are responsible for the 2008 bailout and are making massive profits at the expense of many struggling homeowners and renters.
Homeowners all throughout the country are having trouble making their mortgage payments. The danger of losing their houses is ultimately a threat to them. Banks remain silent and provide essentially no support while the government remains silent.
However, the very same banks that provide mortgages also make enormous profits. So here’s a solution to the current crisis: ten years after government money was used to bail out the banks, they need to pull their weight and help customers.
Barclays, HSBC, Lloyds TSB, NatWest, and Standard Chartered, the “big five” banks, reported 2022 profits of almost £37 billion. According to a Unite union report published in May, UK banks gained an additional £7 billion by not passing along increased interest rates to savers. Despite the Bank of England base rate being 4.25% in April 2023, many of those banks were only offering their easy-access savings account customers rates of less than 1.3%.
Additionally, this year has seen a spike in their profits. On May 3, Lloyds announced £2.3 billion in earnings for the first quarter of 2023, up 46% from the prior period. Natwest announced £1.9 billion in profits for Q1 2023 on April 28, up 50% from the prior quarter. In the first quarter, NatWest reported a 43% increase in net interest income to £2.9 billion, which represents the difference between what it pays savers and what it charges borrowers. These are merely two instances; the data from HSBC and Barclays are as shocking.
Indeed, Nationwide, a building society, declared last month that it would pay £340 million straight into client accounts for the first time after a surge in deposits and higher interest rates caused yearly profits to increase by 40% to £2.2 billion. 15% of its yearly profits are used to calculate the distribution.
For typical homeowners, it’s a different scenario. Mortgages with fixed rates have already become more expensive; this week, a two-year fixed rate was above 6%. The Bank of England is anticipated to raise interest rates further during its meeting this Thursday. The price of remortgaging has increased significantly for at least 1.5 million families. There is concern that this could result in a sharp surge in foreclosures and rent increases.
It’s time for the banks to take action to protect households from the worst repercussions of this mortgage crisis as bank profits continue to climb. What can be done, then?
The banks may willingly accept a portion of the interest rate hike’s weight and undergo some type of haircut. This would entail that companies would lower their interest rates and admit that mortgage holders are having financial difficulties, defraying the expense from their profits. However, the government should step in and impose an excess profits tax on the industry if the banks are unwilling to take action.
A mortgage interest relief programme could be funded with £5.5 billion for 2022 and probably much more in 2023 if the UK’s main five banks were obliged to pay a 15% windfall tax (equal to Nationwide’s customer payout). On Q1 2023 profits alone, a 15% tax would cost £3 billion.
At this amount, it wouldn’t completely alleviate the burden anticipated to be brought on by the rate increases, but it would go some way towards easing household pressure during a period of a cost-of-living crisis. It might be the deciding factor in preventing many people from losing their homes to foreclosure or repossession.
Mortgagee assistance during challenging times is nothing new. Previous administrations provided assistance through the Mortgage Tax Relief Act (Miras). Miras cost the government’s coffers £302 million in 1971, or £3.5 billion now. It was worth £1.4 billion in 2000 (its final year), which is equivalent to £2.5 billion now.
Finally, it’s important to remember renters. Along with mortgage assistance, it is past time that the mayors of our major cities receive the authority to regulate rentals that they have been requesting. Profits for landlords have increased by 15% to 20% in recent years.
It’s time to take action. Whatever means of help are available, it is imperative that action be done quickly to reassure the public that their homes are secure and that they will be able to pay their rent or mortgage. This will provide Labour the breathing room it needs to introduce a comprehensive housing policy package with mass council housebuilding as its centrepiece.