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 in which I’d like to clear up a few things about the way we talk about the economy.
The headline news pushed by the Government in last week’s Autumn Statement was that inflation has halved – down from 11.1 per cent this time last year to 4.6 per cent today.
It’s true, inflation – the rate at which goods and services get more expensive – has slowed down. But, make no mistake everything from food to cinema tickets, from energy to travel, is more expensive than it was before the 2020 Coronavirus pandemic. And, the Government’s 2 per cent inflation target is a long way off.
Inflation is lower but living costs are not.
It’s therefore unlikely that the Bank of England will significantly lower its base rate any time soon and mortgages are not suddenly about to get less costly.
In fact, last week, the Office for Budget Responsibility (OBR) published data showing that mortgage rates are likely to remain high for the next six years.
The OBR – an independent body which analyses the UK’s public finances and provides scrutiny over the Government’s economic policy – has now changed its view on what might happen to mortgage rates.
Eight months ago, it was forecasting that the average mortgage rate in 2025 would be just under 4 per cent. Now they think it will be 5 per cent or thereabouts until 2026.
One percentage point might not sound like a big jump but for anyone remortgaging or buying a home it’s a difference of thousands of pounds, depending on how much you’re borrowing.
Over the past 18 months, there has rightly been much coverage of and concern for the plight of homeowners who bought expensive homes with low rate mortgages and are now struggling to cope with higher interest rates.
Neither banks nor the Government have yet landed on an adequate way to support this demographic of people, particularly mortgage prisoners who are being punished by extremely high variable rates.
However, more broadly, it could be a good thing if mortgage rates remain higher than they were, and therefore more connected to economic reality than they have been since 2008.
In the 2010s, cheap credit fuelled a house price boom which, as I continue to shout into the void about, has caused a housing affordability crisis and trapped lots of would-be first-time buyers in the overpriced and precarious private rented sector.
Cheap credit is one of the reasons that Britain has such an acute housing crisis.
The ultra-low interest rates of the post global financial crisis years were a historical anomaly and we may never see a 0.5 per cent mortgage rate again unless there is another dramatic intervention from either the Bank of England or the Government.
Britain’s politicians could have taken advantage of low rates to borrow and build social housing. They didn’t do that. Instead, they allowed homeownership to become a political football and encouraged people to buy increasingly expensive homes without properly explaining that cheap credit wouldn’t necessarily last.
A return to lower rates would not necessarily be helpful to anyone. It could drive more house price inflation and prolong the pain of people without enormous amounts of wealth being unable to afford homes.
As things stand, house prices are set to continue falling next year. If rates remain stable at 4 or 5 per cent, this could mean that the market is able to start moving again – it is currently stalled with the number of sales going through much lower than this time last year.
Cheap credit allowed the cost of homes to become divorced from people’s incomes because low rates greased the wheels of a precarious market and made it look like housing was a good investment.
Perhaps it was for a while but, now, we are all forced to be more realistic about how much a home should actually cost.
This is long overdue but the Government is in a real pickle.
Policy makers are focused on the short-term problems of higher interest rates. They don’t just make mortgages more expensive, they make the Government’s debt more expensive – each one percentage point rise adds around £15bn to Britain’s borrowing in five years’ time, according to the Resolution Foundation. If rates remain high, our debt ratio is on course to climb over the next half-century.
This is bad because it could mean that the cost of repaying our debts overshadows public spending which, as I noted last week, is already being cut at a time when we need to invest in infrastructure, which includes housing.
We urgently need to find ways to properly support people during periods of economic uncertainty and building truly affordable social housing fit for the long term would be a good one. Right now, that’s not a serious focus in Westminster because our politicians have been looking at the short-term gains of focusing on the 2 per cent inflation target.
More’s the pity.
As I write in this week’s column, local councils have nowhere to house a growing number of homeless people and, as a result, are handing out tents and sleeping bags.
I’ll file that under things I never thought I’d write.
Key Housing
Next up, some actual good news!
The long-awaited Leasehold Reform Bill is making its way through parliament.
The Housing Secretary Michael Gove has said that he is completely confident that it will pass before the next general election, banning leasehold for new homes (but not flats) when it does.
This is one to watch because the rumour in Westminster is that the election could take place in May, after Jeremy Hunt’s national insurance cut kicks in.
Time is ticking for Mr Gove.
I’d also like to draw your attention to something very interesting which has happened in Oxford.
Oxford City Council has unanimously voted to support local authorities being given powers to introduce controls on rents for private tenants. The move comes as a result of a motion proposed by local Green Party councillors Lucy Pegg and Chris Jarvis at a full council meeting on Monday.
The passing of the motion will see the council “publicly campaign for local authorities – including Oxford City Council – to be given powers to introduce rent controls”.
Private rents remain at historic highs. The Government currently has no plan to introduce any sort of rent regulation. But could this motion in Oxford be the first of many?
Local authorities are increasingly struggling to help the growing number of being made homeless by private landlords because they can’t pay their expensive rent.
Something will have to give.
Ask me anything
In response to a story I have written about how black renters are more likely to be denied a home than white renters, I’ve received more than a dozen messages from people who believe they’ve been racially discriminated against while trying to find a home.
This is not allowed but, sadly, it does happen.
One reader has asked me what their rights are in such a situation, so I wanted to share a link to the housing charity Shelter’s advice page.
Unfortunately, until the Renters’ Reform Bill passes and a proper ombudsman for private renters is created, there is no easy or uniform way to make a complaint about a landlord or letting agent.
Ask your question via X @Victoria_Spratt, Instagram @vicky.spratt or email vicky.spratt@inews.co.uk
Vicky’s pick
And, finally, for something unrelated to housing. I am very, very late to the party but I’m finally reading Tomorrow and Tomorrow and Tomorrow by Gabrielle Zevin. I don’t want to receive a flood of emails telling me off for inadvertent spoilers so … I’ll just say this: it’s as good as everyone says!
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.