City watchdog asks banks how they will support mortgage borrowers

theguardian.com:

The City watchdog is asking banks how they plan to step in and support struggling mortgage borrowers, as lenders such as Virgin Money relaunch home loans at higher rates following a spate of withdrawals sparked by this week’s market meltdown.

Supervisors at the Financial Conduct Authority (FCA) have been holding talks with lenders to understand how their mortgage customers are faring and the kind of options that are on the table that would give struggling homeowners some breathing space.

Brokers estimate that about 1.9 million mortgage borrowers are due to come out of fixed-rate deals next year, raising fears that homeowners could struggle to afford higher monthly payments on new loans.

Chris Sykes, a mortgage broker at Private Finance, said rising rates would mean some customers “will have to make cutbacks” on their overall spending.

“I’ve quoted some clients on interest-only products [that are worth] three times their original mortgage payment moving forward,” he said. “I’ve quoted some clients thousands more than their current mortgage payment for a new product.”

First-time buyers with small deposits were facing interest rates upward of 6%. “It could be in some circumstances significantly more expensive than renting now,” Sykes said.

Virgin was one of the first to stop issuing new mortgages on Monday, after the government’s mini-budget sent sterling rates to record lows and UK bond prices plunging, making it difficult for banks to price their home loans accurately. A string of rivals followed, resulting in 40% of mortgage products being pulled from the market by Thursday.

However, with some calm returning to markets, Virgin relaunched mortgage products on Friday morning, albeit with interest rates starting at 5.2%-6.8%. That