A new market in long-term fixed rate mortgages?

14 Sep

At one end of the age spectrum, Britain has older people in need of social care.  At the other, younger people who want to own their own homes.  The best one can say of Ministers’ attempts to help both to date is that these are a work in progress.

The social care plan that will be voted on these evening will do nothing much to improve the provision or quality of care, whether delivered in one’s own home or elsewhere.  It may not deal even partly, let alone wholly, with the problem it aims to address – namely, having to sell the family home to help pay for care.

This is because it’s more than likely, when the new Health and Social Care Levy kicks in during 2023, that the money raised from it will flow to health – that’s to say the NHS, the capacity of which to consume resources is inexhaustible – rather than social care.

None the less, we raise half a cheer for the Government for potentially ensuring that some people at least will no longer have to sell their houses to help fund care costs.  Even if the proposals that have been announced so far won’t deliver the Conservative Manifesto commitment of ensuring that “nobody needing care should be forced to sell their home to pay for it“.

Since the levy will be a form of national insurance, it will largely be paid by younger people.  So the generation that can’t afford to own their own home will have even less disposable income than they did before.

Which takes us to Ministers’ housing plans.  The Health and Social Care Levy scheme has been drawn up at short notice, and the Government is rushing it through Parliament speedily.  Neither condition applies to the housing measures.

The Planning Bill pledged in the Queen’s Speech hasn’t come to the Commons or Lords yet – and no wonder, since its terms are essentially being negotiated between Ministers and Conservative backbenchers (plus senior councillors).  Pre-election, any prospect of loosening Green Belt restrictions was seen off.  Post-election, Tory MPs did for the housing algorithm.

It is reported that the Government will now abandon the zoning system it had planned, plus targets for housebuilding.  One take is that such a retreat would damage Ministers’ aspiration to see more homes built.  Another is that is would make little difference.

This is because housebuilding numbers have been increasing during recent years: in 2019/20, 243,770 homes were delivered – the highest annual number in over 30 years, and the seventh year in a row that the number of homes delivered rose.  Furthermore, the Government has already persuaded Parliament to back an expansion of permitted development rights.

Developers will be able add two storeys to existing buildings without planning permission, and turn premises into homes.  There is a push for street votes to expand properties – see Bob Blackman’s recent piece on this site – as an alternative to concreting land.

Whatever happens next, any Minister who sought to solve all of Britain’s housing problems by building more would be the ultimate one-club golfer, since more homes wouldn’t address the other factors in the mix: limited space, smaller families, high immigration, powerful developers, a long tradition of property rights, a complex planning system, curtailed post-crash lending and new Net Zero requirements.

And if boosting home ownership is an aim of policy – as it should be – what we wrote in the ConservativeHome Manifesto, the best part of ten years ago, still applies.

“No matter how fast we can make land and construction capacity available, the money markets can always move faster – pumping cheap credit into property investments. Any government move to undermine sensible planning protections only serves to set off the feeding frenzy.”

Ministers have tried to help younger people get in on the act through Help to Buy (launched by the Coalition) and the 95 per cent mortgage guarantee (unveiled in the last Budget by the Chancellor).

But home ownership has only drifted up marginally in recent years – to 65 per cent in 2018 compared to its 71 per cent high in 2003.  And when one turns to who owns what, it’s a tale of two generations: last year, only nine per cent of owners were aged between 25 and 34; a whopping great 36 per cent were 65 or older.

One of the clubs that the Government wants to see used is long-term fixed rate mortgages. “We will encourage a new market in long-term fixed rate mortgages which slash the cost of deposits,” that 2019 manifesto said.

It doesn’t follow that, because some of its other commitments haven’t been honoured (such as the pledge not to raise national insurance), this one won’t be delivered.  However, the keys to making it happen lie not so much in the Treasury as in the Bank of England, and the new requirements that it placed on getting a mortgage in the wake of the financial crash.

The Government’s interest in long-term fixed rate mortgages owes much to the Centre for Policy Studies, and in particular to the case put forward in a report for the think tank by Graham Edwards.

He argues that, because of the certainty that these mortgages offer, they don’t need to be stress-tested – and so can be offered with the 95 per cent loan to value rates that were the norm before the financial crisis.

What about the danger of negative equity?  The counter-case is that, while this is always present, there was a minimal increase in default rates in the wake of the crash.  What if wages grew more slowly than the mortgage costs?  Edwards’ answer is that “there is still a lot of scope for borrowers to absorb the increase in housing cost before they reach a point of financial stress”.

It will be claimed that the Conservatives are fixated by home ownership – just as, returning to social care, the Prime Minister is concentrated on people selling their homes to help pay for it.

In theory, it is open to the Government to stress one Tory viewpoint, that “there’s no such thing as a free lunch” to the exclusion of another, that “wealth should cascade down the generations”.  But in practice, Ministers can’t be indifferent to younger people’s desire to own their own homes, at least if they wants them to have a stake in the capitalist system that the Conservatives support.

Nor can it ignore the wish of older ones to pass on family homes – at least, if the Party’s experience in the 2017 election is anything to go by.

As we say, Ministers need to deploy different clubs if they are to negotiate the course of “building beautifully”: smaller developers, migration control, more supply, control on costs (including those emerging as a consequence of Net Zero).  But these won’t be enough to deliver higher home ownership, too.

For that, the Government will need to help rebalance the playing field between those who own property and those who don’t, which requires help from the Bank of England and the financial institutions.  Otherwise, younger people, bereft of alternatives, will have an growing interest in levelling-down, not levelling-up.  In other words, in a housing market crash.

Richard Holden: Levelling up is for voters in the South as well as my constituents in Durham

21 Jun

Richard Holden is MP for North West Durham.

The Village Hall, Delves Lane, Consett, Co. Durham

It’s a bit like the fabled London bus: you wait ages for a by-election, then four come along at once. For the Westminster bubble – the media, politicians, psephologists and the commentariat – these provide much-needed fresh meat for broadcast comment and column inches. They are the perfect base on which all can retrospectively build their latest pet theory, or justify their most recent musing.

Last month, Hartlepool and Airdrie and Shotts were the focus. In a fortnight, the bubble’s eyes will alight upon Batley and Spen. Until then, the Chesham and Amersham result provides nourishment for this week.

Like an oversized Christmas turkey, the result will be dissected and eaten, the remaining meat will sandwiched and eaten cold for days, and the carcass will then be picked over by someone in need a morsel. Finally, the bones will be boiled up for stock, and set aside to form the basis of future fodder.

Today, we’re at the sandwich stage. Edward Davey, a man uniquely blessed both with the appearance and charisma of a microwaved jacket potato, is clearly relishing some rare limelight for the Lib Dems. The dead parrot is very much alive, he cries! And he repeats this on every media outlet going, spreading his orangey-yellow spin-sauce as thick and fast has he can.

Former Conservative Cabinet Ministers, sat on colossal majorities – thanks to our Prime Minister’s clear stance on Brexit, rather than their own failed approach – bemoan this latest by-election result. The reason for it is clear: it’s whatever pet peeve is tickling their fancy, as they charmlessly forget that they’re participants in, not commentators on, politics.

But from the conversations I’ve been having, the general noise from the bubble is drowning out a far stronger signal. In elections, as with opinion polls, you’ve got to look at trends, not individual results. The trend, rather than the by-election de jour is the same as the local election results. The Conservatives continue to perform solidly (unusually so for a party in Government), and you can see just how much trouble Labour are in. And it knows so.

The local elections of just six weeks ago showed Labour going backwards from the hammering they’d got under Jeremy Corbyn in 2017. Hartlepool added to the party’s woes. The trend has been re-enforced in Labour’s unprecedently poor showing in Chesham and Amersham. 622 votes (1.6 per cent) is abysmal, especially when you consider that, under Corbyn in the 2017 general election, Labour came second with 11,374 votes (20.6 per cent of the vote). Starmer, elected in part because it was thought he could win back more of Southern England as well as reverse the losses in the Red Wall, is now looking weaker than ever.

From the day Tony Blair became Labour leader, the party didn’t go backwards in the by-elections that other opposition parties won all the way up to 1997. Perth and Kinross, and Littleborough and Saddleworth, won by the SNP and Lib Dems respectively in 1995, both saw Labour’s vote share rise, despite the other parties taking those seats from the Conservatives. Moreover, Labour know that talk of ‘electoral pacts’ would be madness for a party that seeks to govern, or for a leader who thinks that they can become Prime Minister.

But Labour now knows that it has a leader who is incapable of winning elections. Behind the scenes, it is looking to change him, and sooner rather than later. Plans are more advanced than is widely known beyond the bubble. Both Lisa Nandy and Angela Rayner have desires for the Labour crown with campaigns ready to go, if not already fully underway.  Andy Burnham’s appetite for the leadership is so blatant it’s even being spoofed on Radio 4 comedy shows.

With Labour about to become embroiled in another testing civil war – the timing of which is dependent on just how badly this downward trend goes in the near future – Conservative MPs, wherever they represent, should cool their boots.

There’s a lot of talk at the moment, but the Government’s planning proposals haven’t even gone out to consultation yet. Everyone knows that the current system’s broken: that it works for large land-banking developers, and does very little to really drive sustainable brownfield regeneration outside the centre of our major cities. So let’s not prejudge anything.

On top of that, levelling up is an agenda for everyone because it’s explicitly not about taking from one to give to another. The clue is in the name: it’s about ensuring the provision across the country is there to meet the talents of our people. It’s as relevant to the lad in Ashford as it is for the girl in Ashington. Both want good further education provision, a good job, in time a home of their own for them and their family, good transport and broadband connectivity.

It’s about tackling the productivity issues our country faces so that we don’t have a hideous situation where we’re having to transfer vast amounts of tax around the country to perpetually subsidise some areas. The drive behind levelling up is instead ensuring that towns, villages and individuals across the country will have the jobs and access to jobs and opportunities that, in time, will enable them to pay a greater portion into the collective national pot as they get better off.

Labour don’t like levelling up because they want client communities who rely on handouts from the centre who will then, with a tug of their collective forelock, say thank you for the hand-out by re-elect Labour MPs. So, let’s not fall into the trap of its North v South drivel.

Now is not the time to be distracted by the noise. Cool heads are required – with our opponents about to plunge themselves into another bout of “the public are bonkers for not voting Labour.” As their leadership candidates jostle for the votes of an overwhelmingly out of touch metropolitan membership, we Conservatives, the party in government, must not be distracted. We need one focus, delivery of our one-nation Conservative agenda, because that’s what the public here in the village hall in Delves Lane today or in the shop next door care about. They will accept nothing less.