Mortgage and Rental Costs

Stewart Hosie Excerpts

Tuesday 27th June 2023 Commons Chamber

[Stewart Hosie (Dundee East) (SNP)]

The right hon. Member for Leeds West (Rachel Reeves) raised the spectre of those commentators who are suggesting that we crash the economy into recession as a way of tackling inflation. Others have commented on that over the past week or so. The more that I think about it as a serious proposal, the more hideously grotesque it appears that, in the midst of all this, there are people out there, swarming around with daft ideas, suggesting that poverty and penury are actually an economic tool.

The Minister spoke in support of his Government’s amendment (a), which starts by welcoming

“the Government’s drive to halve inflation, grow the economy and reduce debt”.

Inflation is not halving; it has stayed at 8.7%. Core inflation has gone up to 7.1%, real gross inflation is at 18%, and the debt to GDP ratio has hit 100%. I know that politics is politics and that there are things Ministers will have to say, but if they bear little resemblance to reality, they are unlikely to believed.

I am thinking of some of the very early contributions to debate. The hon. Member for Eastleigh (Paul Holmes), who is no longer in his place, referred to other people’s plans. I think it is just extraordinary to listen to Tories being critical of anyone who simply thinks that people having a warm, dry and affordable house for themselves and their family is anything other than a rather sensible ambition.

According to Moneyfacts, the average two-year fixed-term mortgage is now sitting at 6.23%, not far off the post-mini-Budget peak of 6.6%. Although it is true that, on Friday, the UK’s biggest lenders signed a deal that included, as part of this new mortgage charter, a commitment to give homeowners a 12-month grace period before their home is repossessed—I welcome that and the other measures—the deal actually forms a rather limited relief package that certainly will not offer help to everyone who needs it. That came after the Bank of England raised interest rates to 5%—the 13th consecutive rise, and a larger-than-expected increase—meaning that we now have the highest interest rates in 15 years.

I support 100% the operational independence of the central bank, but I wonder whether that was the right approach. We all know that there is a lag between interest rates going up and the impact of driving inflation down being demonstrated. I wonder whether we are repeating a mistake that we have seen many times in this country: interest rates not rising quickly enough at the beginning, and continuing to rise too late at the end, turning a bad situation into a recession, or making a recessionary situation worse than it need be.

The pledge on forbearance is one of the main measures in the agreement struck with lenders. The lenders that have agreed the pledge include NatWest, Lloyds, Santander and Barclays, which, as the Chief Secretary to the Treasury said, control 75% of the market—that figure has increased to 85%. As we have heard today, as well as in yesterday’s statement, that agreement does not cover all the lenders, nor does it cover all mortgage-holders, some of whom are in very specific circumstances. We heard from a colleague yesterday about people who have residual Northern Rock mortgages and are tied into specific deals. It would be helpful to find out, for example, whether they will be able to take advantage of the opportunities that the charter allows for. The SNP welcomes what has been said so far, but it is clear that the mortgage charter will offer limited relief to the millions of households across the UK who are facing soaring mortgage costs.

Let us look at the detail. As I said, the average two-year fixed-term mortgage is now sitting at 6.23%, not far off the 6.65% peak. The average five-year fixed-term mortgage is at 5.86%. Those rises mean that, at the two-year rate, repayments on a £150,000 mortgage—not far off the £184,000 average price of a house in Scotland—are now £990 a month, compared with £660 a month on the average rate available in December 2021, before the hike in borrowing costs began. From £660 a month to £990 a month is a 50% rise in two years. That is a huge amount of money: it amounts to an increase of £3,900 a year compared with December 2021. We know that wages have not kept pace with inflationary costs, and that the people who are struggling with this have also been struggling with soaring energy bills over the past 18 months. People are really hurting.

I feel for people who have done the right things: those who are earning reasonable wages but are not rich, who managed to save a 5%, 10% or 15% deposit, and who capped their mortgage at maybe three times their earnings and did not borrow excessively. I do not know anyone in the real world who has a spare £3,000, £4,000 or £5,000 a year to sling at the increase in their mortgage costs after facing all the other inflationary pressures over the past year.

For many, the measures announced will be of limited relief. We know, for example, that lenders will be quite selective about who they allow to take the interest- only option. David Hollingworth, associate director at L&C Mortgages, noted:

“Going interest-only can work but only for the right kind of borrower, someone with a good financial history of repayments, someone with plenty of equity in their home who is just looking for some breathing space.”

That does not cover a lot of our constituents, who may not have a lot of equity at all and may, for one reason or another, have found themselves missing a payment here or there because of other pressures.

The president of the Resolution Foundation highlighted that the approach of consecutive UK Governments to managing the economy and the housing market has led to lower levels of home ownership, with those who own their homes feeling “intense pain” as a result of rising interest rates. He said:

“There is a group of several million people who could be seeing their mortgage costs rise by about £3,000 in a year and that is a lot for a middle-income household to bear. So it is going to be tough for them. Conservatives believe in the property-owning democracy”—

although they are doing rather a good impression of trying to destroy it. He went on:

“We’ve seen tragically a narrowing of homeownership over the last decades. That in turn means that if you’re trying to use interest rates, mortgage rates to drive disinflation, you’ve got a smaller group to operate on and they feel more intense pain.”

The Resolution Foundation also noted that more than four in 10 low-income households are spending more than 40% of their income on mortgage repayments. That is extraordinarily stark. When one considers that something in the order of 116,000 households are coming off fixed-term deals every month—perhaps the Chief Secretary to the Treasury can confirm that number—those people who are already spending more than 40% of their income on housing costs will find things extremely tough indeed if they are hit with a 10%, 15%, 20%, 30% or 40% rise in their mortgages this coming year.

The Resolution Foundation also warned that 31% of low-income mortgage holders say that their fixed-rate mortgage will come to an end between now and the end of the year, and that a large number of that group are already spending more than 40% of their income on their mortgage, as I said. It was critical of the fact that the Bank of England does not have a duty to consider the implications that its actions might have on the housing market or mortgage holders. I have asked the Government a number of times recently about reviewing whether an inflation target is the right primary target for the central bank, and whether the tools that the Bank has are appropriate. I wonder whether we should have a growth target, for example.

In New Zealand, considering the impact of rising rates on the housing market is part of the central bank’s remit. The housing market is such a big part of Britain’s economy that I am sure the Bank of England will have considered the impact of rate rises, but it is also clear that its job when setting interest rates is to focus entirely on getting inflation back to 2%, and it has no obligation to look at the impact on the housing market. I wonder whether we should review the targets that the central bank has and the tools it is given.

We know that soaring mortgage costs do not just impact on mortgage holders; the costs of increased mortgage payments are also passed on to renters. In Scotland, we have offered some protection through the rent cap, but such a measure has not been introduced down here. It is interesting that Matt Downie, the chief executive of the homelessness charity Crisis, has said that hundreds of thousands of people could be left unable to cover their rent and at risk of losing their homes:

“Low income renters face a catastrophe—they can’t rely on housing benefit as it’s been frozen since March 2020 and is completely inadequate. There isn’t nearly enough social housing to go round and over a million households are on waiting lists for the few genuinely affordable homes we do have.”

The mortgage crisis and the inflationary crisis have thrown into stark relief the absence of a proper housing policy, particularly from this Tory Government, the size of waiting lists and the costs associated, even now, with getting a rental. Official figures this week showed that private rental costs rose at an annual rate of 5% in April—the sharpest pace on records dating back to January 2016—while rents outside London surged at the fastest rate on records going back to 2006. The Institute for Fiscal Studies also warned that interest rates hitting landlords’ borrowing costs were part of the reason for the very large increases in rents.

The pain is being felt across the board—well, almost across the board—for renters and mortgage holders, on top of all the other inflationary pressures we have seen. The message should be clear to the Government: whether you are a mortgage holder or a renter, holding your nerve will not pay the bills; holding your nerve is not a policy to fix these problems.

--- Later in debate ---

[Andrew Griffith]

All households are impacted by the higher cost of money that we face. That is why we are focused on supporting all households, supporting those who are the most vulnerable and bringing forward at pace our measures to support the mortgage market. That is also why, since taking power, this Government have restored the overall health of our financial system. It is important that the House understands that mortgage arrears and defaults are today at historically low levels. Less than 1% of residential mortgages are in arrears, a level below that which we saw during the pandemic and significantly lower than under the last Labour Government.

[Stewart Hosie]

In the last hour it has been reported that two-year UK gilts are at 5.24%, a 15-year high, above the post-mini Budget peak, and markets now see a 70% chance of those rates going over 6% by the end of the year. If it is all going so well, why do the markets not believe the Tories?

[Andrew Griffith]

I always make a point of not commenting on the markets, in whichever direction they move. The responsibility of Government is to act and the responsibility of this Government is to deliver. We will control what we can control and the markets will do what they do.

The mortgage charter lays out that there will be a minimum 12-month period—I believe that is double the Opposition proposal, but I am happy to take an intervention on that—from any first missed payments before any repossession action is taken. It is important that our constituents understand that these measures offer comfort to those who are understandably anxious about the impact of higher rates on their mortgages and provide support for those who would get into financial difficulties. More broadly, the mortgage market itself remains robust and, because of the actions the Government have taken over the past 13 years, the average homeowner remortgaging in the past year had close to 50% loan to value, indicating that most have considerable equity in their homes.

Help for mortgage holders, but help for savers too: this Government are committed to ensuring that people are supported to save and can access a wide range of competitive savings products. The current range of options available to savers includes some of the highest rates that we have seen in recent years on both instant access accounts and the more relevant fixed-term products, which represent a better apples-to-apples comparison with fixed-term mortgage rates. The top instant access savings rates currently on the market offer around 4.2% and the top one-year fixed rate is much closer to the mortgage rate at about 5.8% annual equivalent rate.

Tackling inflation remains the Prime Minister’s and this Government’s No. 1 priority, and it will remain so until it is tamed. Allowing inflation to go on at the current rate or to grow higher would be the biggest threat to our collective economic security. While we continue on our fight to fight inflation, we will also do what British public expect; we will look at how we can grow the economy over the long term, improve productivity and ensure that no communities are left behind. We continue to take forward supply-side policies to increase the productive capacity of this economy and encourage workers back into work, including rolling out the largest ever expansion of free childcare. All that will set us up for greater productivity.

Let us contrast that with the Lib Dem plan to pile on to inflationary pressures an unfunded £3 billion a year. That is eclipsed only by Labour’s £28 billion a year—Interruption.] Labour Members do not want to hear it; they are talking among themselves. The IFS said that Labour’s £28 billion plan would cause interest rates and inflation to rise. Paul Johnson said that

“additional borrowing both pumps more money into the economy, potentially increasing inflation, and also drives up interest rates.”

That really would be a Labour mortgage bombshell.

In this barmy weather, those thinking of taking a summer holiday should remember that Labour’s economic policy has more flip-flops than the average surf shop: national insurance, corporation tax, the pensions cap, North sea gas, and, yesterday, shelving reform of high street business rates. The fact is that no Labour Government have ever left office with unemployment lower than when they came to power. As my hon. Friend the Member for Stourbridge (Suzanne Webb) reminded us, the note left by Labour’s Chief Secretary to the Treasury in 2010 said, correctly: “I’m afraid to tell you there is no money left.”

This Government are taking action on the economy. We are taking the tough decisions to bear down on inflation, we are supporting the vulnerable, we are helping the economy to grow, and, as the amendment states, we are helping mortgage holders with our new mortgage charter.