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More than 1.5 million homeowners with big mortgages will be facing "a disaster" if — as expected — house prices fall by another 15% this year, leading figures for the consumer organisation Which? and Citizens Advice warned MPs today.
Both organisations told the Commons Treasury committee investigating the banking crisis that they were alarmed at the prospect of a new wave of repossessions despite the government's call for lenders to delay taking action.
Doug Taylor, personal finances campaign manager for Which?, and Peter Tutton, senior policy officer at Citizens Advice, painted a grim picture facing mortgage-holders, particularly "right to buy" tenants who had bought their council or housing association home and now could no longer keep up their mortgage payments. "We could be facing a disaster if this happens," Taylor warned.
Which? estimated that 1.5 million homeowners could find themselves either in negative equity or with mortgages equal to more than 90% of the value of the property — often the cut-off point for the original lending agreement.
This led to Nick Ainger, Labour MP for Carmarthen West and South Pembrokeshire, to cross-question Michael Coogan, director-general of the Council of Mortgage Lenders, at a later session, whether other lenders would follow Abbey, owned by the Santander group, and start writing to homeowners warning them that they could be asked to make extra payments because their mortgage was now more than 90% of the value of the property. Abbey has not implemented this threat under the terms of its lending policy but Coogan could not guarantee that this would not happen.
"This would be a commercial decision for each individual bank," he told MPs and would "be determined by the relationship between the bank and its customers".
He went on to predict that for some people with fixed rate mortgages their plight might not be as dire as people had predicted. "By the time they switch from a fixed rate to a variable rate, the variable rate will have come down, so the impact will not be so bad," he said.
Taylor criticised banks for cutting interest rates for savers while not passing on cuts in the mortgage rate for borrowers. Evidence from Which? cited Halifax Bank, which has been bailed out by taxpayers, as offering just 0.15% on a cash ISA for investments over £3,000. Another unnamed bank was offering 0.1% — which he said "amounted to £3 interest on a £3,000 investment — admittedly tax free."
His organisation was attacked by John Mann, Labour MP for Bassetlaw, for being "more concerned with savvy middle class people" than the real poor — for proposing more rather than less competition among lenders who give high interest loans to the poorest tenants. The MP suggested that there should be fewer lenders with more controls over their lending rates.
Later Angela Knight, chief executive of the British Bankers Association, defended the banks for having to balance cutting mortgage rates with keeping savers on board while recapitalising their assets.
- House prices
- Property
- Mortgages
- Mortgage lending figures
- Repossessions
- Banking
- Banks and building societies
- Economic policy
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