This is Home Front with Vicky Spratt, a subscriber-only newsletter from i. If you’d like to get this direct to your inbox, every single week, you can sign up here.
Good afternoon and welcome to this week’s Home Front. It’s fair to say that home – specifically how much a safe and stable one costs ordinary people – does not appear to be front of mind for at least one of the contenders for Conservative Party leader.
The most perturbing thing about last night’s head-to-head leadership debate between former chancellor Rishi Sunak and current foreign secretary Liz Truss should have been the fact that the pair of them appeared initially as petrified cardboard cutouts when the cameras panned around the studio.
But the substance of what they said soon became far more alarming than the style, particularly when it comes to implications for the cost of mortgages. Indeed, Sabrina Hall – a mortgage advisor with 20 years’ worth of experience – has described Liz Truss’s economic plan as “terrifying” to me over the phone.
Let’s recap before we get into the details.
A key difference between the economic plans of the two contenders for Big Dog’s job is simple: Truss favours immediate tax cuts while Sunak does not.
Truss would like to scrap the rise to National Insurance, a planned rise in corporation tax and she would like to temporarily scrap green levies on energy bills. However, Sunak says he would not cut taxes until inflation was under control (a position he has held consistently since February this year).
Now, there’s an entire newsletter to be written on the efficacy of tax cuts full stop. But we are where we are so let’s assess the potential damage of what’s on the table.
Sunak took Truss to task on her proposed tax cuts which, he said, could cost somewhere in the region of £40bn. Other estimates, such as that from the Institute for Fiscal Studies, put the figure closer to £30bn.
Either way, tax cuts of this scale would have serious economic implications. Not least, fuelling inflation, which is already at a 40-year high by increasing the cash knocking around, as business advisory firm Blick Rothernberg has told this newspaper. This, in turn, could mean that interest rates have to go up even more than they currently are, which would make mortgage repayments more expensive.
According to Professor Patrick Minford (a former economic advisor to Margaret Thatcher) who has reportedly been advising Truss, they could go as high as 7 per cent under her economic plan.
Yes, 7 per cent. Let’s pause on that for a moment.
Interest rates have been kept at historic lows (with the Bank of England base rate at around 2%) since the global financial crisis of 2007 which has meant cheap borrowing and some of the most affordable monthly mortgage repayments in history.
Even the smallest hike in interest rates can have serious implications for homeowners with mortgages as anyone who has recently remortgaged or had a fixed rate deal come to an end (like me) will know.
For instance, when the Bank of England raised interest rates to 0.75% in March, it added around £300 a year to a 2.25% variable rate mortgage deal of £200,000.
Homeowners are currently getting a shock when they remortgage or come off a fixed rate because the Bank of England has been incrementally increasing the base rate in recent months in an attempt to curb inflation.
So, if interest rates did go to 5 or even 7 per cent, it could cost those with mortgages that are not fixed or due for renewal dearly.
Professor Minford, is a professor of applied economics at Cardiff Business School. He himself has told The Times that Truss’s plans would fuel inflation, which would in turn force up interest rates.
However, unlike the mortgage advisor I’ve spoken to, he doesn’t think this is a bad thing.
“Yes, interest rates have to go up and it’s a good thing,” he told The Times. “A normal level is more like 5-7 per cent and I don’t think it will be any bad thing if we got back to that level.”
More expensive mortgages, he added, would be “part of the adjustment”.
Mortgage advisor Sabrina Hall, who runs her own company, Kind Financial Services, begs to differ.
“It’s a terrifying thought because people are already struggling,” she explains. “ I’ve got clients who are coming off rates that are like one and a half or two per cent and having to go on to rates that are more like three or four per cent.”
“The jump in their monthly payments is significant. So, the idea of somebody coming off a five-year fixed rate at one or two per cent and suddenly going onto a 7 per cent rate…well their payments could go through the roof.”
We are talking about increases potentially running into hundreds of pounds a month, depending on the size of the mortgage.
“It is worrying,” Hall adds. “This really could make the difference between someone’s mortgage being affordable or not.”
“I was watching the leadership debate,” Hall concludes. “Rishi pushed Truss on the potential fallout of her plans, and I really think it’s terrifying that [the potential cost to mortgages] is being ignored.”
There’s another factor to consider here, too. And one that was not referenced in last night’s debate.
High interest rates could also cause house prices – which are currently at historic highs across the country – to fall.
Ian Mulheirn is a former economic advisor to the Treasury and now Chief Economist at the Tony Blair Institute for Global Change.
“If interest rates rise due to tax cuts, you’d definitely expect it to have a negative impact on house prices,” he explains over the phone. “Higher interest rates will knock through to mortgages, reducing the amount that people can borrow and cutting what they can afford to pay for homes which could cause house prices to fall.”
Sunak has been accused by sources in Truss’s team of “mansplaining” economics since last night’s debate. The phrase, coined by feminist writer Rebecca Solnit has become shorthand for that sinking feeling a woman has when a man tells her about something she very likely knows more about than him.
However, in Truss’s case, the phrase has certainly been used in vain. How, I wonder, would she explain unaffordable mortgage repayments to struggling homeowners were inflation to hit 7 per cent?
Interest rates in the UK were last above 7-7.25 per cent in October 1998. Anyone who lived through the high inflation and high interest rates of the 1980s and 90s will remember that people lost their homes. And those who did not struggled to make repayments.
Hall remembers all too well. “The difference back then,” she adds, “is that people could walk away from their homes when interest rates hit 15 per cent. But today, they’d be forced into a private rented sector where rents have also hit historic highs. It would be foolish to think that an interest hike wouldn’t seriously affect people.”
Sunak still wants to cut taxes, just not quickly. Truss, meanwhile, has defended her plan as “affordable” while on a visit to Peterborough, saying it will encourage growth.
Forget mansplaining. How, I wonder, would either candidate explain the potentially inflationary fallout of tax cuts to ordinary people once Prime Minister?
On the subject of struggling homeowners…let’s hope both Conservative Party leadership candidates are aware of new data from the Finance and Leasing Association which has found that a growing number of people are taking out second mortgages to pay off debts such as credit cards and personal loans or finance home improvements and, even, pay tax bills.
According to the data, just over 2,800 second mortgages, with a total value of £133m, were taken out by homeowners in May this year. That is 43% higher in terms of the number of loans, and 53% higher in terms of their value, than in May last year.
Household debt is something of a canary in the coalmine when it comes to economic turbulence. As living costs spiral with rising inflation and rising interest rates, the fact that growing numbers of homeowners are taking on extra debts in order to meet their outgoings deserves attention.
Have you taken out a second mortgage recently? I’d love to hear from you. vicky.spratt@inews.co.uk
And, finally, consistent with this week’s theme – financial hardship and housing costs – let’s turn our attention to new research from youth homelessness charity Centrepoint which has found that almost half (49%) of 16-25 year olds go to bed hungry while over a third (35%) go a whole day without food due to a lack of money.
Clearly, people of all ages and living in all kinds of housing are being impacted by rising inflation.
Centrepoint commissioned Opinium to carry out a UK national poll to determine the level of food insecurity among the general population of 16 to 25 year olds. The sample consisted of 2,000 young people and was completed between March and April 2022.
One young person, a 24-year-old named Tasha who was supported by a Centrepoint partner – Broxtowe Youth Homelessness (BYH) said of her situation:
“Because of the cost of everything going up, I’m doing long days at work just to get more food for the family. By doing this I don’t get to see my daughter as much. When it comes to meals, there are a lot of days when I don’t eat or have little to eat as I want my daughter to have more to eat than me.”
Tasha now lives with her partner and two-year-old child. She is claiming Universal Credit.
“Even with Universal Credit, we never have enough for a lot of things. It only pays some of the bills and my wage goes on bills and food and clothes for my daughter,” she added.
In the context of the race to become Britain’s next prime minister, talk of tax cuts might win over Conservative Party members, but it won’t do much to help those currently struggling to make rent as well as buy food and pay bills.
Are you struggling to make ends meet on Universal Credit? Please do get in touch. vicky.spratt@inews.co.uk
The housing crisis is far-reaching, there is almost nobody in this country who isn’t affected in some way. I’d love to hear from you about your housing situation. Please tell me if there’s something that you think we should be covering. Have you been evicted by a private landlord recently? Are you currently living in temporary accommodation? Are you in debt because of the building safety crisis? We want to know. vicky.spratt@inews.co.uk
Nick Bano is a housing barrister at Garden Court chambers. He has been a barrister speciailsing in housing issues for nearly ten years and, in that time, he has seen it all: evictions, homeless people being refused help by their local council, poor conditions and bad landlords.
Criminal barristers recently went on strike because they feel their profession is insufficiently funded. This week I spoke to Bano about how cuts to legal aid combined with the surge in evictions since Coronavirus lockdowns ended have, against a backdrop of rising rents, caused demand for legal housing support to increase while the availability of that support has, in some places in the country, completely disappeared.
“I specialised in housing because when I qualified, in around 2013/2014, the housing crisis was really starting to bite,” Bano explains. “There was an awful lot of work to be done and housing support was one of the few aspects of legal aid that the government hadn’t got rid of when they made cuts in 2012.
“It is just about still viable to make ends meet [as a housing lawyer] but there are now some places in the country – the West Country for instance – where you simply cannot get hold of a housing lawyer because there are none available via legal aid unless you are near Bristol.”
These areas are known as housing legal aid deserts and the Law Society has previously warned that rural areas are the worst hit.
“If you’ve ever met anyone who has tried to get a legal aid housing solicitor at short notice, they will tell you just how difficult that process is. Not just in terms of actually finding one but in terms of satisfying the legal aid agency that you meet the criteria for support,” he explains.
However, people do urgently need housing support. As living costs rise, we know that evictions are happening more and more – and, as I’ve reported, not always through the proper legal channels.
Bano adds that local authorities are also refusing to help certain people who have fallen behind on rent who, he argues, it ought to be their duty to support.
One case that sticks in his mind is that of a family who became homeless and were housed in a converted shipping container in west London by their local council.
“I had a really awful case a little while ago where a family of four had got into rent arrears and had been rehoused by the local authority in a shipping container. It was awful. It was boiling in the summer and freezing cold in the winter. It was dangerous for the kids,” he explains. “But the rent for the shipping container was more than the average full time wage of a teaching assistant. I really think that’s emblematic of the housing crisis.
“The family couldn’t pay the rent on the shipping container and were evicted. After that, the council said they had made themselves ‘intentionally homeless’ by not paying rent and, because the law on this is incredibly strict, we ended up losing the case that the council should help them.”
On balance, Bano concludes that we have an “ideological problem” with housing which will require a serious change in how we approach housing. As he sees it, we need a legal framework which supports those in housing need. But political will is required in order for that to happen.
As for funding, “criminal barristers have been on strike,” Bano says. “And the government has now seen what happens when you push legal aid lawyers to the edge. Housing lawyers aren’t there yet but we will be looking carefully at the criminal barristers’ strike and taking courage from it.”
This is Home Front with Vicky Spratt, a subscriber-only newsletter from i. If you’d like to get this direct to your inbox, every single week, you can sign up here.
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