The lenders — which account for more than three-quarters of the UK mortgage market — have agreed, among other measures, to give borrowers who default on their mortgages a 12-month grace period before repossessing their homes, the UK Treasury announced. As interest rates soar toward levels not seen in more than 20 years, borrowers will also be able to reduce their monthly payments — for example, by extending the term of the loan — without that affecting their credit scores.
But rocketing mortgage bills could tip the UK economy into a recession as homeowners cut back spending in other areas. Other than encouraging lenders to relax their repayment terms, the government has few options. It has ruled out offering subsidies or tax breaks to affected mortgage holders, saying that would fuel inflation — which could lead to even higher interest rates, compounding the problem. Many borrowers bought their homes when mortgage rates were closer to 1% or 2%.