I have a fixed rate mortgage with interest rates under 2%. It ends in the spring, by which time interest rates could be so high that my monthly repayments could double. I can afford to overpay my mortgage by a decent amount currently, but if interest rates are at 6% I will be forced to count every penny just to be able to keep my home. I cannot imagine what it would be like for people on a tighter budget. People are used to low interest rates which in turn helped to create a spiralling housing market meaning people have big mortgages. It’s an untenable situation.
Not long term. Generally you can fix for 2-5 years, after which your mortgage reverts to Standard Variable Rate or you remortgage. For example, 4.5 I got a 5 year fixed mortgage at 2.5%; when I remortgage in the next couple of months I will get a much, much worse deal - 5% if I’m lucky, probably nearer 6 or 7%. I.e. my monthly mortgage payment is going to double at least, maybe nearly triple.*
I am in the incredibly lucky position of recently having switched jobs and thus gotten a c.25% pay increase so I will have to economise but I should be able to make the payments. There are hundreds of thousands of people who will be remortgaging over the next 6-12 months who are not so lucky, and shit is going to hit the fan. Not least because their monthly energy bill is shooting up as well. (Or, somehow, the government will convince the markets they’re not a bunch of utter clowns, and rates will come down. I am not optimistic.)
*This is essentially a conflict of interest statement - if I sound bitter and angry, it’s because I am.
I’m 37, and all my life I’ve considered myself fairly right-of-centre when it comes to UK politics - though unlike the usual stereotype, I’ve moved to the left over the years. In the last 4 general elections I’ve voted Lib Dem, Independent, Conservative, and Lib Dem (most recent first). I thought I would never vote Labour after Blair and Iraq (and of course I was too young to really absorb the sleaze of the Major years nor the pain for many caused by Thatcher). I also have a deep dislike of some aspects of trade unionism. But as time has passed I feel the main faults of the Blair/Brown years were more to do with their personalities - something Starmer is skilfully avoiding by not having one. Joking aside, he very much seems like the best option right now. Unfortunately I live in one of the safest Tory seats in the country. But if Labour actually put up a decent candidate next time, I’ll most likely vote for them (the last few times it’s been some nobody from London just to fill their spot on the ballot paper, which I’m not happy to vote for no matter what their politics). And that’s from someone who is lucky enough to be fairly well insulated from the current economic turmoil (we fixed our mortgage last year for 5 years, and would have done so for longer if we could - but as has been pointed out, fixed rates of longer than 5 years are not very common).
Maybe you should run as a Labour candidate.
Speaking of energy, Truss and Kami Kwasi have also been repeating the
lie that their energy price cap mean’s that no one’s energy bill will be higher
than £2500 per year. That’s just the likely average.
Heh, fair point! Not something I want to pursue currently (in the highly unlikely event I won, spending 4 days a week in London wouldn’t dovetail well with looking after our young family). And if I did run I think it would be as an independent candidate.
Have they? That’s appalling, as it is actively damaging in that it encourages people to use as much as they want, then they realise they owe massive amounts.
The UK economy has a bias towards property as a primary financial asset. It is over valued and under supplied. The housing stock is in poor condition. The government stopped build housing long ago, hoping that the private sector will do the job. Sadly never build enough houses and apartments that people need. Instead we have a lot of private development aimed at investors from overseas who are looking for a place to put their pension money. The salesmen head for Singapore and China to find customers. Ironically most people in Singapore.live in housing built by the government. London has lots of new high rise apartments that seem rather dark at night bscuae many are empty. Too expensive. There is a shortage of young urban professionals wiling to pay the high rents. Many investors are prepared to sit and enjoy the steadily increase in long term asset value. What people want is family homes, preferably with a garden. For that you must move to the suburbs and suffer a long commute each day to work. Finding the right balance is difficult is a concern to anyone starting a family.
This over valuing of property makes the question of mortgages very important. They used to be easy to get but since 2008, there are stricter affordability tests. Taking out a big mortgage was made bearable by consistently low interest rates. I am old enough to remember when interest rates were last in double figures. That was a generation ago. Now we have a huge number of home owners who are going to face a large increase in their monthly mortgage payments.
This is also going to hit the large number of small private landlords in the buy to rent market. Suddenly their investment, which many regard as their pension, is going to turn sour. They will have increase the rent to tenants or sell up in a market falling property market because fewer people can afford the mortgages at these interest rates. The most exposed will be on interest-only mortgages.
Together this is a financial nightmare for the middle classes who would normally vote Conservative. This was a party that was supposed to reliably look after the economy. They will lose their base voters who will feel betrayed by Truss and her mad gamble to get instant growth before the next election.
This could get a lot worse very quickly. The markets are spooked at the moment, I guess she is hoping that it will all settle down quickly. Other countries are facing similar problems but they are not taking these risks.
Conservative UK politicians have had the benefit of being able to point to a series of external reasons for economic woes: EU, Covid and now Putin. At some point they are going to gave to take responsibility for their mismanagement. Those high interest rate will not only affect mortgages, the interest payments the government will make on its huge loans will increase and there will be less money to pay for public services, which are about 50% of the UK economy. Everyone in the public sector will want a pay increase to cover inflation and the government will have to say no to all those nurses, teachers and pensioners.
This may become a ‘Winter of Discontent’.
The government is probably hoping that after years of keeping a lid on public sector pay rises, workers such as nurses and teachers simply won’t be able to afford to strike this winter 
.
[typo correction mine]
And the answer is: no they aren’t. They will just continue to blame everyone else (as noted above):
Why would they take responsibility now? They would gain nothing by doing so, and the lies seem to work well enough for their base.
Yes, good summary. Particularly the knock-on effects. As you say, it may be one thing for young renters to not be able to afford a house, it’s quite another when house prices fall and and a whole class of people who thought they were financially secure find they are anything but.
(In the long-term a gradual decline of house prices relative to incomes would be an excellent thing not least because it would encourage people to invest in actually productive parts of the economy, but a crash is very much “careful what you wish for” territory.)
So…
Renters - have been screwed for years
Mortgagees - screwed over the next 6-12 months
Landlords -screwed from c. 6 months hence when asset values fall
Owner-occupiers - screwed as soon as they need to access their capital, or, e.g. try downsizing to a smaller more energy efficient home.
It’s pretty comprehensive really.
That’s weird because by the graph it looks like the Lib Dems have cratered over the past few months. I guess they used to be even more unpopular? Did they support the minibudget? I wouldn’t think that they were doctrinaire enough on taxes to support such a radical slashing but stranger things have happened.
Oof
LibDems tanked after their coalition with the Tories and have never recovered. It’s a shame because it’s close to where I sit politically but they seem to consistently elect timid leaders and perform pantomime-level publicity stunts. I’d like to have a word with whoever does their PR.
The Conservative base is in for a big hike in their mortgage payments.
Putin may indeed look the image of an evil Bond villain but I don’t think even the most loyal Conservative would lay the blame for high interest rates on his meddling.
Conservatives will forgive governments any number of sins as long as it only affects others.
This big bold unapologetic gamble by Truss to get some growth in the economy will hit Conservative voters where it hurts: in their pocket.
Truss is no Thatcher. She is sloppy and thinks she can ride out any flak and it all sort itself out in the end. Somewhat like her predecessor Boris Johnson, the maverick. But she does not have the charm or disarming personality required of a maverick.
The Conservatives made a mistake. Rishi Sunak would have been the better choice for PM. The UK needs a steady hand on the economy not a reality TV personality. In Truss they have neither, and her policies are going to cause huge anxiety when those monthly mortgage payments double or triple.
There are warnings coming from all directions that this is a huge risk. I guess she imagines that fortune follows the brave. But when previous PMs and Chancellors have decided on some new policy, they usually take care to ensure they have all their ducks lined up for when the critics snipe. Truss simply looks hopeless, repeating empty platitudes and desperately dodging questions.
I am quite pleased the reporters on regional TV got to interview her. They did not give her an easy ride. Truss does not have good media skills and it showed.
Being able to handle incisive questioning by political reporters is a key skill in British politics. You at least have to appear to answer the question, even if you cleverly avoid it. This duelling is part of the theatre of British politics and is an important part of the news cycle.
Truss is not good at this and did not fare well against these lower profile political journalists.
This would not have gone unnoticed by the party membership. It does not bode well for the future.
Absolutely. I can remember a time when buying a property was simply to have security of tenure and freedom to manage and decorate it as you wished, with a reasonable chance of getting the same value back if you sold it , rather than expecting to make a substantial profit over and above the capacity of the general economy to support such inflation. (Mind you, that was also a time when Conservatives boasted of getting more social housing built than Labour).
My parents lived in rental property all their lives; in the early 50s, my father turned down the opportunity to buy the house they lived in for £1000, because he thought that was over-inflated and prices would come down as the postwar building boom increased supply. Last time I looked, it had sold for £1.4 million.
But how we get back to a common-sense housing market, I don’t know.
Yes, Housing is one of several structural problems that beset the UK economy, along with unaffordable Child care, under financed senior Social Care the NHS? and so on.
One day we will get a government that actually tries to fix these problems rather than ignore them.
Instead the Conservatives gave us Brexit as the most pressing issue of the age. Goodness knows how much that will cost, buried under the other huge bills from Covid lockdowns and Putins energy crisis.
I judge a government by how it is lead in times of crisis. When things are going well I look for the structural things they have been able to fix.
This requires politicians who are statesmen ir states women.
Sadly we have not had any since the Blair/Brown days. Just a long line of Conservative party hacks. Qualified only by their ability to maintain support amidst their internal intrigues.
The result is Cameron, May, Johnson and now Truss. Political parties run out of ideas after a few years, then they just coast, mind the shop and squabble. The UK is long overdue for a change.
One thing Truss has done is to put a clear line between Conservative and Labour. These parties are prone to stealing each others policies if they look good. There is some overlap.
No-one is going to be stealing Truss’s policies, that is for sure. Labour are beginning to articulate some policies that make sense and would win over the middle ground. We will see….
I find it interesting that the media (and indeed even here) people fall in line with the nonsense narrative the tories are putting out. “Taking a gamble on tax cuts”. It’s not a gamble, it’s got a 0% chance of producing growth. It’s the same gamble if I stood on the high speed railroad tracks in the middle of nowhere and gambled on the train seeing me and stopping in time. It would not.
It’s about giving 2% back to the masses, when their energy bills are going up fivefold. It won’t even cover that. It isn’t in any way sane. Yet, the media just play along with the narrative.
What is interesting is the recent polls, which would put the Tories with less MPs than the Scottish National Party (who represent 8% of the countries population), with pretty much every Prime Minister past or current, and most of the cabinet having lost their seats. Is that enough to shock them into doing something different? It seems unlikely. It’s a scorcher earth policy. They do not want to be in power anymore, the cupboards will be bare because they’ll have emptied them into their house. I just hope the NHS manages to make it through because they don’t give any sort of fucks nowadays.
What could be new is a new record, as to how short a time it has taken for the right to take control and in effect make their party unelectable for decades. Six years.
Possible scenarios: enough Tory MPs which still want to work in politics go to the libdems and vote out the current lot, and nail their colours to their mast.
Rejoining the EU? Well, it was thought before this that it would be unlikely, and the EU might be wary of them wanting out again. The way things are going is that seems to be pretty unlikely to be a problem anymore.
I hadn’t know that. Wow. I can’t imagine taking a risk like that. I can remember the days of mortgage rates well into double digits. Now I know why people are so concerned about their mortgages. I figured most people would have had 15 or 30 year mortgages like here in the US. The only thing worse than such short fixed-rate loans is negative amortization.
My parents bought the house I grew up in for $12K in 1952. They sold it for abour $65K about 20 years later. Shortly, thereafter Prop 13 passed and housing prices soared and continue to soar. I check a couple of the real estate websites occasionally, and that house is now worth about $2.25M.
Someone’s just reminded me of this (I do miss The Day Today):
May I ask a simplistic question (from an uneducated Yankee who doesn’t know anything about British politics) ?
What is causing this sudden collapse of the economy and massive increase in everyone’s mortgage payment?
Three weeks ago, nobody was in a panic.
(And three weeks ago, I had never heard the name of Liz Truss)
What specific change has caused this massive panic, and why can that change not be cancelled, and return Britain to life as it was three weeks ago?
Why is it suddenly so critical to announce a huge change in the interest rates right now? Was life so terrible three weeks ago? Was Britain on the verge of such a tragedy that a massive change of course is necessary today?
Because the new leadership in the Tory Party decided that the future lay in going for growth by major reductions in tax (largely benefiting the already better-off) at the same time as providing (some) support to keep energy bills from going sky-high - but to do so by increasing borrowing. It wasn’t just reversing the previously-announced (and modest) tax rise, it was the unexpected abolition of the top tax rate and the insouciant reliance on borrowing.
And the financial markets decided this was unsustainable. So the government would have to pay more interest on its bonds, and interest rates would have to go up to avoid the already increasing inflation rate going out of control. And inevitably, the currency markets decided sterling wasn’t the best value currency to be holding, so the exchange rate fell, which makes imported goods more expensive, which also pushes up inflation, which would add to the pressure on the Bank of England to increase interest rates.
Inevitably, if they’re to stick to their principles, they’ll be slashing public services even more than they already have been.
But to add to it all, they did all this without the usual over-arching statement of fiscal principles and overview of the general economic and fiscal situation, and without the now customary independent assessment from the Office of Budget Responsibility (and having peremptorily removed the senior civil servant in the Treasury). It all looked like some teenage ideologists’s back-of-an-envelope fantasy.