Treasury plans to help renters get mortgages as interest rates set to soar

Housing, south London - Richard Baker/In Pictures
Housing, south London - Richard Baker/In Pictures

The Treasury is drawing up plans to make it easier for hundreds of thousands of renters to get mortgages after the Bank of England on Tuesday signalled that interest rates are set to rise sharply.

The Telegraph understands that officials will this week present Treasury ministers with formal advice about what to include in a major review into widening access to mortgages.

One idea being pursued is a drive to convince lenders to accept people’s rental payments as proof that they could afford regular mortgage payments.

The plans were in progress before banks began withdrawing mortgage deals in anticipation of a rate rise but, if adopted, could help prop up the housing market by boosting demand.

A government spokesman said: “We are working across government to explore what more can be done to help people achieve their dream of owning their first home.”

The Bank is expected to raise rates significantly from their current 2.25 per cent, with financial markets predicting that they could go as high as six per cent midway through next year.

On Tuesday Huw Pill, the Bank's chief economist, said a “significant policy response” to the tax cuts announced in last week’s mini-Budget could be expected at the next rates meeting on Nov 3.

Rates of six per cent would trigger a fall in house prices of between 10 and 15 per cent, according to new estimates released by Capital Economics and Credit Suisse.

On Tuesday, further mortgage lenders scrambled to withdraw deals from the market, with Santander and HSBC the latest to pull fixed-rate deals, although the latter is expected to relaunch mortgages at higher rates for new borrowers on Wednesday.

Roughly one in 10 deals have disappeared amid the chaos in the last day alone, according to Twenty7tec, a mortgage platform.

Deals are being withdrawn with a few hours notice and the turmoil has caused banks’ phone lines and applications systems to jam, with brokers reporting long wait times at Virgin Money, and a temporary outage at HSBC on Tuesday.

Kwasi Kwarteng met City investors as he continued attempts to calm market jitters over his mini-Budget, with the Chancellor saying he was “confident in our long-term strategy”.

On Wednesday, Mr Kwarteng will meet executives from financial institutions including the Bank of America, JP Morgan, Standard Chartered, UBS and Morgan Stanley.

On a call with MPs on Tuesday night, he acknowledged that there had been volatility on the markets but stressed that things were “settling down”, according to one MP who listened in. The pound has stabilised after hitting a record low on Monday.

Mr Kwarteng said volatility was caused in part because the markets did not know in advance about all of the measures in his tax-cutting fiscal statement on Friday and were frustrated.

The Chancellor also defended his decision to scrap the additional top rate of income tax, saying it was the “right” call despite Labour attacks and adding that growth should return in mid-2024.

The Telegraph understands that six major government announcements on supply side reforms are being worked up for the next six weeks.

A Whitehall source familiar with the discussions said the drive had been privately called “Operation Rolling Thunder” after America’s blitz bombardment tactics in Vietnam, but the tag was dropped after the turmoil on the markets.

During her Tory leadership campaign, Liz Truss, the Prime Minister, championed the idea of convincing lenders to accept rental payments as proof that a household could pay a mortgage.

Her team cited government statistics suggesting that 50 per cent of renters could afford a mortgage, rather than the six per cent currently able to get first-time buyer mortgages, if rental payments were taken into account by lenders.

If the policy proved as successful as envisioned, hundreds of thousands more people could get on the property ladder, with 4.4 million households privately renting in England last year.

Mr Kwarteng has already shown willingness to intervene to incentivise property sales amid signs of the housing market slowing, cutting stamp duty in his mini-Budget.

A review of how to expand access to mortgages was announced by Boris Johnson in June but was not launched and is now being reworked by the Treasury. The Telegraph understands formal advice on its launch will be handed to Andrew Griffith, the Finance Secretary, later this week.

A decision will be needed on whether to take forward ideas announced by the former prime minister when the review was launched, including allowing households receiving housing benefits to use that source of funds to get mortgages.