Millions pushed toward the brink of insolvency

There is intensifying pressure on Britain’s government to do more to help struggling households, with the country’s shadow finance minister warning of a “mortgage catastrophe” as millions are pushed to the brink of insolvency.

The Bank of England last week hiked interest rates by 50 basis points to 5%, a bigger increase than many had expected. The BOE’s 13th consecutive rate rise takes the base rate to the highest level since 2008.

The surprise move — which is designed to lower inflation — will affect millions of homeowners as the interest rates on many mortgages in the U.K. are directly linked to the central bank’s base rate. Renters, too, are likely to see their payments increase as buy-to-let landlords pass on higher mortgage repayments.

Research by the National Institute of Economic and Social Research, a leading independent think tank, estimated that the BOE’s latest interest rate hike would see 1.2 million U.K. households (4% of households nationwide) run out of savings by the end of the year because of higher mortgage repayments.

That would take the proportion of insolvent households to nearly 30% (roughly 7.8 million), NIESR said last week, with the largest impact set to be incurred in Wales and the northeast of England.

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

U.K. Finance Minister Jeremy Hunt on Friday met with major banks and building societies to discuss the deepening mortgage crisis in the country.

Hunt said Friday that three measures had been agreed with the banks, mortgage lenders and the Financial Conduct Authority, including a temporary change to mortgage terms and a promise that consumers’ credit scores would not be affected by discussions with their lender.

The minister also said that for those at risk of losing their home, lenders agreed to a 12-month grace period before there’s a repossession without consent.

“These measures should offer comfort to those who are anxious about high interest rates and support for those who do get into difficulty,” Hunt said.

“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 on businesses,” he added.

Rachel Reeves, shadow finance minister for…