There is growing concern among Tory MPs in marginal seats over an “interest rate catastrophe”, and the impact this will have on the party in the run-up to the next general election, expected to be held next year.
Lucy Allan, a Conservative MP in Telford, is among those that feels the party has not understood the impact of spiralling mortgages – on peoples lives, and in turn the Tory party’s chances of winning the next election.
“With the Bank of England likely to increase interest rates again this week, Allan questioned her party’s attitude to the issue. “
“I don’t think we have quite understood the interest rate catastrophe,” she said. “People [are] telling me their monthly mortgage payment is exceeding their salary. That is unsustainable.”
Allan, who announced over the weekend that she would not run again at the next election, continued: “Constituents do ask about ‘support for unaffordable mortgages’. I say ‘talk to your lender,’ but the reality is they need to sell sooner rather than later and that’s a hard message to hear.”
Allies of Boris Johnson are already seeing the coming mortgage crisis as the issue that will sink Rishi Sunak’s attempts to recover in the polls before the next election.
“When you look at what is happening to mortgages, it’s really killing our own people,” said one Tory. “It feels like this is the end of a cycle – 13 years coming to an end.”
A rather concerning report from the Resolution Foundation thinktank found that UK households coming to the end of fixed-rate mortgage deals next year will face an average £2,900 increase in their annual payments. It estimated the average two-year fixed mortgage rate will be 6.25% this year.
So far, only the Liberal Democrats have backed a special package aimed at mortgage distress in the form of a £3bn “mortgage protection fund” for people facing repossession.
In response to the Resolution Foundation report, the Treasury said: “We know this is a concerning time for mortgage holders, which is why the FCA [Financial Conduct Authority] requires lenders to offer tailored support to borrowers struggling to make their payments, and we continue to support mortgage holders through the Support for Mortgage Interest scheme.
“Behind this, though, is global inflation, continuing to eat away at incomes around the world, which is why the single biggest thing we can do to help families is to halve the rate this year.”
So, people who overstretched themselves believing that cheap/free money would be available forever are feeling the pinch? Back in the 1980’s when we had double digit rates, up to above 15%, we managed, we cut back we took second jobs, nowadays, in the days of ” it’s someone else’s fault “, people expect government to bale them out, why?
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Actually, a significant portion of the homeowning public did not manage. Some had bailiffs kick them out, others simply walked into the local branch of their lender and handed in their keys.
Some did indeed battle on through, like my parents, but it was a close run thing.
As it was for me during the credit crunch.
Unfortunately, right now we have a significant percentage of the mortgage paying public who have spent over a decade paying very low interest rates and know no better.
Are they naïve? Possibly, but since the lenders have happily and freely lent them money without restraint (because there wasn’t any) and the government failed to apply such restraint, who exactly is to blame?
Under NO circumstances should the banks be bailed out – they have lent money indiscriminately and should be forced to bare some of the pain.
But the BoE base cannot return to being at such a low rate again. It must be at a level roughly parallel to the inflation rate otherwise the underlying equations that make our economy work start to fall apart.
Oh, hold on, isn’t that what we’re seeing right now…?
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It is always an interesting comparison, the average house price in the middle of the 80s was maybe £25,000? 15% of that is a lot less than 5% of the average now.
There has to an adjustment for inflation which I am not smart enough to do without consulting Google but I am sure that the difference will be substantial along with the cost of everything else.
Agree with your points of blame and overstretching. Mortgages literally provide a table which states what payments will be if interest rates are X.
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If it helps Ben, at the time I was earning £3500 PA, my wife about £2500 PA, we had borrowed £12,000 on a purchase price of c£15,000. When we secured the loan rates were about 9% I believe having been up at about 17%, before we had completed rates had already hit 12% and went on to about 15%.
The differences were income multiples, we borrowed 2 x joint, deposit was 20% equivalent to 1/2 a years joint salary and availability of money, you could not just walk into a bank and get a mortgage, we had to wait for a bank to call us and ask us if we still wanted to borrow money!
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Its fine to tell them to sell up, but where are they going to live? We do not have any capacity for sellers coming into the rental market. If they do, they will surely take the place of the tenants on low incomes, so where do they go and live? This is a nightmare scenario.
I keep hearing complaints of interest rates are too high. Rubbish, interest rates were too low and was intended to be a short term fix. It became the norm for far too many, an opportunity for many to get a foothold on the property ladder. Short-sighted consumers and arguably irresponsible lending was/is the problem. I don’t know anyone who didn’t expect rates to climb and should have planned but as is often the case, it is always someone’s fault, never theirs. How many times did they hear “Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it.” To most of us, this is just a legal warning to remind us that we don’t own our home outright until we’ve paid off any loans secured on it. For many though this is a reality they should have planned to avoid as best they can. Those that can’t, in simple terms became borrowers that shouldn’t have been.
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