Financial Markets: Stability

Lord Best Excerpts

Thursday 3rd November 2022 Lords Chamber

[Lord Best (CB)]

My Lords, I thank the noble Lord, Lord Sharkey, for initiating this debate and for his excellent opening speech. My contribution will seek to identify actions which the Government could take to avert an ever-worsening housing situation and even extract something positive from the instability in financial markets which has led to higher borrowing costs.

First, to prevent a spate of repossessions—with the misery and huge cost of families being made homeless—there needs to be a robust safety net to meet the inevitable rise in home buyers running into serious mortgage arrears. In response to the 2008 global financial crisis, the Government introduced an improved income support for mortgage interest scheme. However, help was much diminished in 2018. On 9 June this year, the Prime Minister’s office announced a new plan to support homeowners which would strengthen protection at this time of other cost of living increases, but no further detail about these proposals has been given since. Can the Minister say when it is expected that the Government will take this forward to avert a serious outbreak of mortgage repossessions and homelessness?

Secondly, turning to new housebuilding, Secretary of State Michael Gove this week re-established the Government’s target for the construction of 300,000 homes per annum. This has sent out a signal that the Government believe it is essential to ease shortages and improve affordability by stepping up housebuilding. But, sadly, it will be harder to achieve this target with the rise in borrowing costs. Housebuilders are likely to sit on their hands rather than build more homes when costs are higher but prices may be falling; when there will be far fewer first-time buyers able to afford the new mortgage costs; when Help to Buy subsidies are finishing; and when deep uncertainty about the future will hold back potential purchasers.

The benefit which society can salvage from this predicament could come from a boost in the supply of new social housing, with support for the acquisition by social housing providers of sites or not-yet-finished developments. Not for the first time, this would keep the construction industry going through hard times and prevent a construction-led recession while achieving a real increase in desperately needed affordable social housing.

Thirdly, turning to the private rented sector—I welcome the helpful contribution of the noble Lord, Lord Young of Cookham—the hike in borrowing costs will now affect thousands of landlords. The number exiting the market has already been growing following less favourable tax treatment and necessary new and forthcoming regulatory changes. Two-thirds of the country’s 2 million landlords who have buy-to-let mortgages will face the higher costs of borrowing alongside higher costs of management, maintenance and new energy performance requirements. Very few will be able or willing to pass on all these extra costs to their tenants, not least since some tenants are already paying half their income in rent. So a greater exodus from the private rented sector can be predicted, with dire consequences for those already struggling to find rented accommodation.

This is not necessarily a disastrous phenomenon if struggling landlords are enabled to sell to social landlords—local housing associations and community-led housing organisations—which can modernise and re-let the properties as secure, affordable homes with low energy costs. The 2021 Affordable Housing Commission, which I had the honour of chairing, proposed a national housing conversion fund of £3.5 billion which could, with the usual private financing, achieve this switch for many thousands of properties. Will the new levelling-up funds open up this powerful route to addressing poor conditions and fuel poverty in the private rented sector, regenerating neglected areas, reducing the escalating housing benefit bill, saving NHS and social care costs and helping with net-zero targets?

I encourage the Minister to pass on to her colleagues Churchill’s wise advice: “Never let a good crisis go to waste”.