Kwasi Kwarteng meets UK bank chiefs over mortgage market turmoil

Chancellor Kwasi Kwarteng called heads of Britain’s largest retail banks to a meeting on Thursday to discuss the turmoil in the mortgage market following his ‘mini’ budget late last month.

Chief Executives including NatWest’s Alison Rose, Nationwide’s Debbie Crosbie and Lloyds’ Charlie Nunn are expected to attend the meeting.

The meeting with heads of private and commercial banks is part of an “ongoing engagement” with financial services firms, one person said. According to a person familiar with the plan, the discussions are designed to understand lenders’ views on the mortgage market.

Bank chiefs will seek to assuage concerns about the rapid withdrawal of post-‘mini’ budget mortgage products and the higher interest rate offerings they are now returning with, according to two people close to the situation. They will urge the impact of higher-yielding products on the 2 million homeowners who would need a debt restructuring by the end of 2024.

The meeting, which was first reported by Sky News, comes after a week of turmoil in the UK mortgage market, sparked by volatility in Gilt yields, after investors reacted negatively to Kwarteng’s unfunded tax cut plan. Lenders have withdrawn more than 1,600 mortgage products since the “mini” budget on Sept. 23.

Other issues likely to be discussed include the possible removal of interest paid to lenders when they hold money in reserve with the central bank, one person said. It is one of the measures the Chancellor could take to reduce public spending as lenders are making hefty returns on the more than £800bn they are holding at the central bank.

Kwarteng is likely to be questioned about the 8 percent mark-up on bank profits, a source said. First introduced in 2015, the levy was due to be reduced to 3 percent from April next year, but the chancellor announced he had scrapped the cut to his “mini” budget.

The Bank of England’s £65 billion intervention on September 28 had helped calm gilt markets in recent days, but UK government bonds came under renewed selling pressure on Wednesday, with the 30-year gilt yield falling on Morning rose to 4.22 percent.

Most banks have hiked mortgage rates, with the average two-year contract topping 6 percent for the first time in 14 years, according to data provider Moneyfacts.

Banks have also increased the interest rate “stress test” they apply to borrowers to see if they can afford mortgage repayments.

The Mortgage Works, Nationwide’s buy-to-let arm, said its products had an 8.49 percent stress rate due to “significant changes in buy-to-let interest rates and the overall economy.”

Residential mortgages would be stress tested at 8 percent or 7 percent for first-time buyers, TSB said. “Like all mortgage lenders, we have to make sure customers can afford their mortgage,” TSB said. “Every lender has to make similar decisions to protect their customers.”

Lloyds, Nationwide and NatWest all declined to comment.

Additional reporting by George Parker and Tommy Stubbington Kwasi Kwarteng meets UK bank chiefs over mortgage market turmoil

Adam Bradshaw

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