Mortgage quake

Shefali Lincoln (source unsplash.com)

Soon after taking office, Jeremy Hunt talked about the need to make decisions of “eye-watering difficulty”. Let’s add jaw-dropping to eye-watering — the last few weeks has seen a plethora of statistics about the plight of Britain’s mortgage holders following the mini-budget.

According to an Ipsos survey in late October, 36% of those with a mortgage have experienced an increase in housing costs since late summer. This measure, however, came before the largest single hike in interest rates by the Bank of England since 1989.

Now, the Resolution Foundation estimate that the by the end of 2024 the annual mortgage bill of one in five households will have increased by £5,000; £8,000 in London. Neal Hudson estimates that a 20% fall in house prices would push around 10% of mortgages in London into negative equity.

Over seven million households in England are buying their property on a mortgage, and they are a diverse group. The Joseph Rowntree Foundation have calculated that if mortgage interest rates were to stay around 5.5%, 400,000 people would be pulled into poverty over the next few years. This has led the charity to suggest the introduction of targeted support for low-income mortgage holders.

Homeownership might be associated with ‘middle England’ but mortgagors are everywhere, making up a large slice of the electorate in Red Wall and Blue Wall constituencies alike. For example, except for wealthy Kensington where many people own their homes outright, mortgagors make up between a quarter and a third of the electorate in Labour’s top ten target constituencies.

The electoral significance of this group is evident in other Ipsos data. Having voted for the winning party at each of the last eight general elections (they also tend to vote), it is the last remaining ‘bellweather’ tenure after private renters swung towards Labour at an election won by the Conservatives. Soon after that result, psephologist Matt Singh challenged the notion of a “Youthquake” driving Jeremy Corbyn’s surge and offered “Rentquake” as an explanation instead.

According to Ipsos, those with a mortgage think a range of actors have contributed to the recent rise in mortgage rates but they are most likely to mention the Conservative party’s economic policies in government and decisions made by Liz Truss as PM. Half, 53%, think that the Conservative party’s economic policies contributed a great deal to increases while 28% said the same of the Bank of England’s decisions.

Housing is a market, but government is seen as culpable. Earlier in the year, just one in five agreed that there isn’t much that British governments can do to deal with the country’s housing market. During the pandemic, the Government imposed mortgage and Stamp Duty holidays, and around the world some governments have, or are thinking about, coming to the rescue in some way.

The new Prime Minister Sunak told The Times recently he understood the concerns of families facing steep rises in their mortgage bills but sought to manage expectations — “Everyone appreciates that the government cannot do everything. How does government do everything?”

People have known about the housing crisis for years — three-quarters of Britons agree it exists — but these views have been built during an era of exceptionally low interest rates. The focus has been house prices and inadequate supply, but the cost-of-living crisis and recent economic turmoil have shone additional light on a crisis of affordability.

The effect has been to extend the circle of concern about housing out beyond long-suffering renters to those borrowing to buy their homes. Suddenly, some of the housing ‘haves’ have joined the ‘have nots’ in losing out, and the ‘have nots’ have been pushed even further away from the prospect of ‘having’.

More households are on fixed mortgages than are not, and most people won’t be affected by house price falls. But half of the fixed rate mortgages taken out last year have a maturity of less than two years. And even though 48% of mortgage-holders disagree that rising house prices are good for the country, only 24% disagree that increases are good for them personally.

The shock of autumn 2022 might fade in time and the Bank of England appears to be dove-ish about future interest rate movements. But, right now, that is no consolation whatsoever to millions of mortgage holders who have been jolted out of a prolonged comfort zone into a distinctly different period.

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Research Director at Ipsos, interested in understanding society and public opinion. Views my own. Pre-April 2020 blogs available at LinkedIn, tweets @BenIpsosUK

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Ben Marshall

Research Director at Ipsos, interested in understanding society and public opinion. Views my own. Pre-April 2020 blogs available at LinkedIn, tweets @BenIpsosUK