Homeownership is the ultimate Conservative dream; it’s a symbol of aspiration and hope. It’s been sold to voters as a good thing since Margaret Thatcher first gave people the right to buy their Council house and it’s been promoted through different schemes ever since.
People in Telford buy into that dream and strive to own their own home. Homeownership is a benchmark of success, it gives people security for life, a stake in society, it creates communities that thrive.
People in Telford are not over leveraged, they do not spend more than they can afford, they pay their mortgage off before retirement, house prices are modest.
But people in Telford are struggling.
When a constituent first asked me six months ago what government support there was for unaffordable mortgages, I was taken aback. Government cannot do a Covid style support scheme every time people hit a financial problem. Whilst I told my struggling constituent to talk to their lender, my instinct was if you can’t pay your mortgage, sell your house.
But this was not a one-off risk taking borrower, living beyond their means or someone who had fallen on hard times. Six months on, this is now the ordinary experience of many homeowners with a mortgage, and the numbers are rising.
Interest rates have doubled since last summer. More ordinary people cannot pay their mortgage. It’s not just a question of finding a bit of spare cash by skipping a night out or putting off a weekend break.
Each and every month for many, their mortgage or rent is beyond their reach. They are raiding their savings accounts, cutting pension contributions, borrowing from family, begging for a pay rise, hoping this will be short-lived; it won't. Interest rates will stay higher for longer. People are now waking up to this nightmare.
The MPC, the Chancellor, and advisers are older and wealthier and more likely to be mortgage free. They say to my constituents: “it’s a price worth paying to control inflation.” But who is paying this price? Not those with substantial equity in their home, not those who have paid off their mortgages, not those who may have an inheritance coming their way, or substantial savings to fall back on.
Worse still, raising interest rates is not working as a strategy to control inflation. Most people are not mortgage holders and if they are they are not immediately impacted by an increase in rates, so it has no impact on their spending. Those that do hold fixed rates mortgages may not feel the impact for some months to come. Those suffering now cannot reduce spending further. So, there is no impact on inflation.
Continually cranking up rates is a crude and damaging tool which will eventually collapse the housing market. A minority of people risk losing everything, while most people continue to spend as before.
This is not just a consequence of the Ukraine war. We have been fuelling the money supply for far too long, even before the lavish Covid support schemes. We now have the multiple cost of living support schemes, and inflation linked pension increases which themselves fuel inflation. In the same way, we have a severe labour shortage which also fuels inflation as employers struggle to retain staff and agree to bigger pay rises. Inflation is now embedded.
It’s not politically palatable, but the reality is everyone needs to bear a share of the pain.
This is a mortgage catastrophe staring us in the face. Blithely saying ‘it’s a price worth paying,’ smacks of complacency. We sold people this dream. We owe it to them to resolve this spiralling disaster.
Lucy Allan is the Member of Parliament for Telford. She is a Chartered Accountant with a 20 year career in finance, specialising in insolvency at PwC during the 1990s housing crash and in the City during the financial crash.
