The government and finance industry regulators have been urged to adopt a 10-point plan to prevent a surge in mortgage defaults when interest rates begin to rise.
The report, which called on the Bank of
Lenders should also be prevented from abusing so-called mortgage prisoners who were already in arrears, and whose financial pain could be worsened by a rate increase. Those lenders should be forced to clear mortgage rate rises with the regulator, the thinktank said.
It said with so many homeowners paying the standard variable rate, and therefore facing higher costs as base rates rise, lenders should be told to offer five-year deals that protect borrowers from higher monthly payments.
He warned that it would be a serious mistake to believe that the legacy of debt built up in the pre-crisis years would evaporate with a return to economic growth. "The magnitude of the stock of debt is simply too large, given expectations that income growth will be gradual at best," Whittaker said.
"And, while the mortgage market largely remains competitive, tighter lending criteria mean that some highly stretched borrowers face limited choices. There is a pressing need for regulation to respond to this new context."
Whittaker added that lenders should be prevented from approaching customers in a haphazard and aggressive fashion that would make a bad situation worse.
He said: "We need an orderly and carefully managed approach to managing the debt overhang in order to minimise the numbers pushed over the edge as borrowing costs rise and to improve the safety net in place for those who can't avoid such an outcome."
Among the other proposals, lenders would develop a standard way of selling repossessed homes to prevent families from being burdened with fees and debts from quick sales.
A new scheme - Help not to be Repossessed - would allow homeowners to trade down to shared ownership.
The base rate of interest at which up to 2 million mortgage payers could be struggling, according to the thinktank
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