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.
Are interest rates going to come down? Will mortgages be cheaper soon? And, above all, should they be?
The impact of Bank of England base rate hikes and a volatile mortgage rates market over the last two years has been enormous: the epic house price inflation which defined the last decade has disappeared and buying a home has started to look like less like a money-making scheme and more like renting from the bank.
So, reports that some lenders might be offering mortgage rates of 4 per cent at the start of 2024 appear to be good news, a sign that things are improving.
This year saw fixed deal mortgage rates of more than 5 per cent (even higher for those on standard variable rates) which, as economists and poverty experts at the Joseph Rowntree Foundation (JRF) warned, risked pulling 120,000 households or 400,000 people into poverty.
Data from UK Finance shows that the number of mortgage holders who have fallen behind on their repayments and ended up in arrears has jumped by 18 per cent over the past year.
In November, 87, 930 homeowners with mortgages were in arrears. This is still less than half of the number of mortgages which were in arrears after the 2008 financial crisis, but – because lending conditions are stricter and, therefore, more stable in theory today – this is still very significant.
Buy-to-let mortgages data show that landlords are particularly hard-hit, with the number in arrears rising by 29 per cent in the same period to just over 11,500.
The financial stress caused for landlords by higher rates could well be being passed on to private renters as landlords worry about being able to pay their mortgages – private rents have consistently hit new highs in many parts of the country this year.
And, as new forecasts shared exclusively with me by the lobby group Generation Rent last week showed, average rents will rise by around 8.5 per cent in England between now and late 2025.
An 8.5 per cent rise will mean that average rent is eventually almost 14.2 per cent higher than the reference rents that were used to determine the recent boost to support for lower income renters (the Local Housing Allowance) in Chancellor Jeremy Hunt’s Autumn Statement.
The prospect of lower mortgage rates is, undeniably, a welcome easing of pressure for a housing market which relied on cheap credit to keep it ticking over.
However, it’s worth noting that, as things stand, they are only available to borrowers with 40 per cent deposits.
The average deposit paid by a first-time buyer in England is 24 per cent, so these lower rates won’t help those who need affordable ways into home ownership for now.
If we’ve learned anything from the last few years it’s surely that it’s futile to make predictions because pandemics, wars and reckless politicians can upend all expectations at a moment’s notice.
The Bank of England’s next decision on the base rate will be announced this Thursday, and it is widely expected that they will hold it at 5.25 per cent.
For lower mortgage rates to become the norm again, the rate of inflation will have to continue falling. According to the latest data, it is at 4.6 per cent. This is the lowest rate since January 2023 and is down from 6.5 per cent in May. However, it’s still a way off of the Bank of England’s 2 per cent target and higher than both America’s inflation rate and that of other European countries such as Germany.
Any sudden rises to our inflation rate and the current trends for lower rates could look very different.
More volatility in the Middle East could also affect the global financial markets which would feed into mortgage rates and, of course, a general election could see the housing market slow down even more than it currently has as people wait to see who will be in charge before moving.
It’s time to accept that we are no longer in the ultra-low rate world of the 2010s. That might be painful but, at the same time, it has caused a reckoning in the housing market which looks like gentle falls in house prices.
If mortgage rates do stabilise at around 4 per cent, that will be a good thing. Particularly for lower income home owners. But expecting them to fall further than that in the very near future is naive at best and ill-judged at worst, because it could cause a surge in sales at a time when the market is arguably in a necessary downturn because economic reality has caught up with it (see my Autumn Statement column) after years of being pumped up with artificially cheap credit.
That being said, it doesn’t strike me that the Government has quite wrapped its head around this new reality. The support available for low-income renters will be wiped out by rising rents in just 18 months and there is, as far as I am aware, no meaningful plan to deal with either extortionate private rents or the fact that, even with slightly lower mortgage rates, buying a home will be near-impossible for first-time buyers who don’t have enormous deposits or access to their parents’ nest eggs.
Now would be a very, very good time for them to grapple with both issues. Politicians and the Bank’s monetary policy committee members will continue to come and go but, regardless of who is in charge, people still need safe, secure and affordable places to live.
Key Housing
You know the housing crisis is bad when it unites seemingly unlikely parties – a major lender – the biggest, in fact – has joined forces with a leading homelessness charity to urge the government to build affordable homes.
Last Wednesday evening, Lloyds Banking Group and Crisis came together in Parliament alongside politicians from both the left and the right to announce their joint call for one million new and genuinely affordable homes to be built and made available to those on the lowest incomes in order to end rising homelessness.
At the reception where this was announced, the minister for homelessness, Felicity Buchan spoke, so did the shadow minister for homelessness, Mike Amesbury.
The most moving testimony, however, came from a man in his forties named Ray. Ray became homeless after suddenly and unexpectedly losing his sight. This meant he could no longer work or live in the shared house that he had been renting a room in. Because he did not have a permanent home, Ray was unable to start working with a guide dog and, so, he was forced to live in unsuitable temporary accommodation without adequate support.
As Ray spoke, I watched people in the room squirm. Ray’s story is the direct consequence of a broken welfare safety net. What happened to him shouldn’t happen to anyone, anywhere but in one of the richest countries in the world, it’s simply not acceptable.
Ask me anything
This week, I’ve been asked via X (formerly known as Twitter) “whether rent control in Scotland is really behind the rising cost of new lets?”
In Scotland, rents are frozen once a tenancy agreement is in place but new lets are not subject to regulation.
As a result, it appears that landlords are charging more for new tenancies.
The argument that rent controls drive up rents is often used against them. However, studies show that an uptick in rents is often only a temporary consequence of new regulation because landlords attempt to charge as much as they can.
However, there is evidence that rent regulation (or control) can stabilise costs in a longer-term way if it is implemented in a considered way.
And, as ever, I’d encourage everyone to talk in specifics when it comes to economics. Rents are not people, they are not animals, they do not have thoughts, feelings or agency of their own. Rents are prices set by human beings. If rents are going up, it’s because landlords are putting them up.
Ask your question via X @Victoria_Spratt, Instagram @vicky.spratt or email vicky.spratt@inews.co.uk
Vicky’s pick
I am currently reading Why Politics Fails by Professor Ben Ansell. Ben has been a collaborator of mine over the years, I am grateful to him for his input on columns about election outcomes (this one, in particular) and for being an early reader of my book Tenants.
I was lucky enough to speak alongside Ben about his work on housing tenure and voter intention in Oxford the other week. His book is fascinating. Do give it a read if you have some time over the Christmas break.
Ben is also delivering this year’s BBC Reith Lectures – his subject is the failings and future of democracy. You can listen here.
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.