By Lawrence White and Iain Withers
LONDON (Reuters) - British lawmakers called on banks to cut high mortgage prices on Wednesday, after a recent bout of political turmoil wreaked havoc on the market for home loans, sending prices rocketing and seeing hundreds of products withdrawn.
Market chaos unleashed by former Prime Minister Liz Truss's unfulfilled tax-cutting plans in late September led lenders to withdraw around 1,700 mortgage products in the space of a week, before reintroducing them at rates 1-2 percentage points higher.
While markets have since stabilised, banks have been slow to lower fixed prices and reintroduce cancelled products, lawmakers on the cross-party Treasury Select Committee said, at a time when household budgets face unrelenting pressure from high energy costs, a slowing economy and broader inflation.
Banks must pass on the benefits of these calmer market conditions to homebuyers, amid fears mortgage-holders on lower incomes may be pushed into default, the lawmakers added.
"Mortgage holders are paying for Liz Truss's mistakes, frankly... and they shouldn't," opposition Labour party lawmaker Rushanara Ali told industry bosses during the evidence session.
Charles Roe, director of mortgages for banking industry group UK Finance, told lawmakers that lenders were reintroducing mortgage products at lower prices.
Roe also called on the government to review its support of a mortgage interest scheme, which helps vulnerable homeowners pay interest on mortgages.
However, Ray Boulger, senior mortgage technical manager at broker John Charcol, said he was disappointed at the slow progress lenders were making.
"Lenders don't want to cut rates too quickly because they're worried about then getting too many applications in and not being able to meet their service standards," Boulger said.
PRICE FALLS FORECAST
Average two-year and five-year fixed mortgage rates have fallen around 0.2 percentage points from their recent peak, but still remain above 6%, Moneyfacts data shows.
"It was 2008 the last time mortgage rates were at 6%, there's a whole cadre of people who have never experienced this...and are very worried," said Joanna Elson, Chief Executive, The Money Advice Trust.
Britain's biggest banks such as Lloyds and NatWest last week said they expected house prices to drop between 7-8% next year, as higher mortgage costs and squeezed household finances threaten to tip the market into a downturn.
Chris Rhodes, chief financial officer at Nationwide Building Society, told the lawmakers the lender's central forecast was for house prices to fall 8% in 2023, adding its worst case scenario was a 30% drop.
The lender has started to reduce fixed mortgage rates for existing customers, while rates for new customers were under review, he added.
Households on variable rate mortgages - which track changes in benchmark rates set by the Bank of England - are braced for higher costs, with markets betting the central bank will hike rates by 0.75 percentage points on Thursday to try to curb inflation.
The government should launch an information campaign similar to those seen in 2008 for people facing home repossessions, The Money Advice Trust's Elson said, advising borrowers to speak to lenders to work out repayment schedules.
(Reporting by Lawrence White and Iain Withers; Editing by Sinead Cruise and Alex Richardson)