Tory MPs in marginal seats are already sounding the alarm over an “interest rate catastrophe”, amid claims that the party has not understood the impact of spiralling mortgages.
With the Bank of England likely to increase interest rates again this week and major mortgage lenders raising their own rates in the last few days, there is a growing nervousness among Tories about the impact this will have later in the year as the main parties begin to shape their campaigns for the next election.
In the most direct intervention to date, Lucy Allan, the Tory MP in the traditionally marginal constituency of Telford, questioned her party’s attitude to the issue. “I don’t think we have quite understood the interest rate catastrophe,” she said shortly after announcing she would not run again at the next election. “People [are] telling me their monthly mortgage payment is exceeding their salary. That is unsustainable.
“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.” Other Tories said they had not had many cases so far, but were on alert for the issue to become more serious later in the year.
While ministers are acutely aware of the problem, Rishi Sunak and chancellor Jeremy Hunt primarily want to tackle inflation – making any package designed to help those struggling with their mortgage difficult. Another Tory in a marginal seat said: “It is very hard because there aren’t many levers we can pull.”
Allies of Boris Johnson are already seeing the coming mortgage crisis as the issue that will sink 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.”
An alarming 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. A slew of new data backing up the concerns is expected this week.
How best to respond to rising mortgage costs is also a challenge for Labour, which has opted to prioritise fiscal discipline over all other demands. It recently scaled down a pledge to spend £28bn a year on green investment, opting to instead build up to that figure over time. 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.”
