Banks agree to help borrowers after talks with Darling

Banks agree to help borrowers after talks with Darling

The government and the banking industry agreed yesterday that lenders would treat borrowers fairly in the housing market downturn and only turn to repossession as a last resort.

The chancellor, Alistair Darling, held talks with the Council of Mortgage Lenders yesterday amid concern in Downing Street that the cost of many mortgages has been rising sharply in recent weeks, in spite of several interest rate cuts by the Bank of England.

Bank bosses welcomed the announcement from the governor of the Bank of England, Mervyn King, that the central bank would provide money for the banking system to loosen the credit crunch that has pushed mortgage costs up.

Michael Coogan, head of the Council of Mortgage Lenders, said it was a "very positive step" towards easing tensions in the banking system, but a Bank of England estimate that banks would seek around £50bn in support would be just the start.

"The mortgage market is facing challenges as a result of the US sub-prime crisis," Darling said after the meeting. "I welcome the arrangements that the industry has in place, and will continue to build upon, to address the concerns of borrowers in difficulty. I hope that lenders continue to take their responsibilities towards customers seriously."

The banks said they would try to keep repossessions low by strengthening links with debt advisers, providing updated debt information to borrowers, and identifying borrowers facing repossession.

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said they would review their arrangements and the problems some borrowers were having switching to new fixed-rate mortgage products, and report back to the chancellor by the end of May.

Coogan said: "Early contact with the lender before a payment is missed should ensure the widest range of options is available so customers can help themselves to avoid payment shock." But he added that mortgage prices would continue to increase in the short term.

"As and when the banks start lending to each other, the rate for lending will go down and that means that will start to bring the price down, but it is not going to be a dramatic reversal. It's going to be a slow process at best," he said.

Andy Hornby, chief executive of HBOS, said the talks were "wide-ranging and constructive". Heads of other lenders such as the Nationwide, Abbey, and Cheltenham & Gloucester, a division of Lloyds TSB, also attended the meeting.

The housing minister, Caroline Flint, said: "We are dealing with an entirely different situation in the market from what was experienced in the early 90s. Demand for housing from first-time buyers and young families is high and the fundamentals of the economy are sound."

But the housing charity Shelter said yesterday's agreement would do nothing to help people who face having their homes repossessed. Shelter's chief executive, Adam Sampson, said: "In the nine months since the credit crunch began, the government has bailed out Northern Rock and is now bailing out the banks with billions of pounds of taxpayers' money, while people who are in desperate need continue to struggle to make ends meet."

The government is nervous about the state of the housing market, as some experts predict falls of 20% or more if the global credit crisis continues.

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