The Sunday Take: Labour is setting the agenda on mortgages

By Matthew McPherson, Director of Policy and Public Affairs

It’s been a tough few years for the UK, and indeed, the whole global economy. The economic shock of COVID-19, followed by Russia’s war in Ukraine, and of course, a dramatic rise in the cost of living. 

Whilst people have undoubtedly felt significant pressures, a combination of wage increases and other employer support, alongside government intervention to cap the unit cost of energy has abated some of the worst effects of the cost of living crisis for people and businesses across the country. 

Purpose-led organisations have played a significant role in supporting their customers, colleagues and communities - and as the Purpose Coalition, we set up the Cost of Living Taskforce to encourage and share best practice to do exactly that. Chaired by former Labour MP Lord Walney, the Taskforce has seen how organisations are pioneering innovative solutions. 

From organisations such as the Co-op, which has established a Wagestream financial resilience programme to allow access to earned pay between paydays, to universities such as the University of Southampton, Loughborough University, and the University of Chester that have increased financial support for students, and provided free or cheap access to food on campus. 

But rising interest rates, and as a result rising mortgages, means that the worst is now to come. 

This week, the Bank of England announced yet another 0.5% interest rate rise, to 5% - the highest level since 2008. Whilst a 0.5% rise sounds insignificant, the financial reality for households is bleak. 

More than 100,000 households with two-year fixed rate mortgages coming up for renewal now face paying an average of £360 a month more. 

Rising mortgage payments will be Britain’s biggest personal financial challenge in a generation. So what can be done?

Whilst Labour argue rising mortgages are down to Liz Truss and Kwasi Kwarteng’s mini budget, the government would say COVID, and the war in Ukraine are to blame - but despite that, there is actually remarkable political consensus when it comes to the action that can be taken. 

Both Chancellor Jeremy Hunt, and Shadow Chancellor Rachel Reeves have ruled out direct payments to households. Such a move would undoubtedly fuel inflation even further, and in the context of the hundreds of billions of pounds spent on COVID-19 and energy support payments, such a scheme would be simply unaffordable. 

However, without a doubt, Labour is now setting the agenda when it comes to ideas to help consumers - and in politics, that matters. 

On Wednesday, the Shadow Chancellor Rachel Reeves set out her ‘5 point plan for mortgages’, including requiring lenders to switch to interest only mortgage payments for a temporary period, allow borrowers to lengthen the terms of their mortgage periods, and implementing a six-month grace period before possessions begin. 

Reeves was smart to be ahead of the curve. On Friday, Jeremy Hunt - following discussions with major banks - unveiled his own action, which includes many of the proposals set out by Reeves, and in some cases going further, with a 12 month grace period prior to repossessions, and allowing consumers to lock in mortgages up to six months ahead, with an option to switch to a better deal should one become available. 

The consequences of another interest rate rise are bleak. On Thursday, new analysis from the National Institute of Economic and Social Research found that by the end of 2023, more than a million households will run out of savings because of higher mortgage repayments, taking the proportion of insolvent households to nearly 30%, with the largest impact in Wales and the North East. 

And the impact won’t just affect those who can’t afford higher repayments - the research found that rising repayments will wipe out 0.3% of UK GDP, with a fall in disposable incomes impacting activity across the economy. That was a point highlighted by Labour’s Shadow Minister for Business and Industry, Bill Esterson MP, during the launch of the Purpose Coalition and SME 4 Labour’s joint report earlier this week, Entrepreneurial Revolution. The report looks at how the UK can put small and medium sized enterprises - which collectively employ 16.4 million people - at the heart of the economy. SMEs play a crucial role in supporting opportunity, and creating good local jobs, and they face being hard hit by a contraction in disposable income. 

The rising cost of mortgage payments, and the subsequent impact of it, is set to dominate the political agenda for the weeks, months and years to come, and come the next general election, will be at the centre of the economic debate.