Rishi Sunak is drawing up plans to extend the mortgage relief scheme beyond the end of June as many businesses remain unable to reopen, Whitehall sources have confirmed.
The Financial Times reported that the chancellor was in discussions with the banking sector about how to continue supporting cash-strapped borrowers through the coming months.
The talks follow Sunak’s announcement last week that he would extend the unprecedented furlough scheme, under which the taxpayer is meeting the costs of paying 9 million workers on behalf of struggling firms.
In his economic rescue package unveiled on 17 March, the chancellor announced a three-month payment holiday for home loan borrowers whose income was hit by the pandemic. But with the government moving only gradually to lift the stringent lockdown conditions that have shut down much of the economy, ministers are keen to avoid a sharp increase in financial distress as the scheme ends.
Any extension may be on less generous terms – and it is unclear what the Treasury’s role would be in funding it. When he extended the furlough scheme, the chancellor said businesses would have to meet part of its cost themselves after the end of July.
Sunak warned on Tuesday that the UK was facing “a severe recession the likes of which we have not seen” after official figures showed a record increase in unemployment, to more than 2 million.
Boris Johnson said in his televised statement earlier this month that workers in some sectors, including manufacturing, were now being “actively encouraged” to return to work where they can safely do so – and ministers are keen to see more businesses, including non-essential shops, reopen on 1 June.
However, others are not allowed to resume trading until 4 July at the earliest – and many will be reassessing their business model in the face of a likely slump in demand as unemployment rockets.
Chris Woolard, chief executive of City watchdog the Financial Conduct Authority, has warned of the need to prevent a surge in debt problems as the scheme comes to an end. In an interview with the FT last month, he said: “Reaching a cliff edge would create a huge spike in people who have need for debt advice … How do you manage that curve? The initial 90-day measures are not meant to be a bridge across the entire crisis.”
Mortgage payment holidays mean borrowers can stop their monthly payments without their credit rating being hit, but they continue to accrue interest throughout the period – meaning that their new monthly payment is likely to be higher afterwards.
Extending the mortgage scheme is likely to increase pressure for the government to do more to help those in rented accommodation facing financial pressure from the impact of the virus.
The housing secretary, Robert Jenrick, has announced that house sales can resume, in a move to assuage concerns that the property market would seize up completely.