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Forget Boris Johnson, it’s the ‘Tory mortgage penalty’ that is Rishi Sunak’s biggest enemy

With higher bills in the pipeline for two thirds of mortgage payers, the risk is things can only get worse for the PM

By Paul Waugh - June 13, 2023

You can always tell when a Government is on the defensive when it can’t get enough backbenchers to turn up to defend it.

During an Urgent Question in the House of Commons on Tuesday on the sudden withdrawal by lenders of mortgage deals, the Tory side was marked by an expanse of empty green benches.

Worse still, of the 10 Conservative MPs who did bother to turn up to hear Treasury minister Andrew Griffith, just two were strongly supportive. Five others riffed on their own concerns at the current state of the economy and its effect on housing.

To prove what a mixed bag the Tory party now is, Miriam Cates talked of a failure to build enough homes for young people, Sir Desmond Swayne criticised Government borrowing levels and James Sutherland complained that interest rates didn’t come down fast enough when inflation fell.

Nick Fletcher blamed the Bank of England because “continually putting up interest rates puts people in a really difficult position”.

Former Cabinet minister and Liz Truss supporter Sir Simon Clarke pointed out that current gilt prices were higher now than they were back during her epic economic implosion.

Sir Simon (who was congratulated by the minister on his new knighthood in Boris Johnson’s resignation honours list) unwittingly made the Opposition’s case for it: that no matter which Tory PM is in charge, the mortgage misery keeps on coming.

And misery it certainly is. The latest figures from Bank of England showed that the rate for mortgage arrears was now at 10 per cent in the first three months of this year, their highest for a decade and equivalent to £14.9bn.

While most lenders have been flexible, the rate of repossessions is now starting to go up too. Last week, UK Finance revealed that there were 1,250 repossessions in the first quarter of the year, up 27 per cent on the same period in 2022. “Any increase in arrears, even a modest one from a low base, is of concern,” it said.

It’s the rising gilt markets, and the higher cost of borrowing, that is forcing British banks and building societies to not just withdraw mortgages but to jack up the costs of those who have to remortgage. Rents are also soaring as nervous landlords try to keep up their own profits.

Central to all the jitters is the UK’s stubbornly high “core” inflation, prompting fears the Bank of England will have to keep on increasing interest rates for months to come. As years of low mortgage rates become a thing of the past, that leaves lots of families facing increases of hundreds of pounds in their monthly mortgage bill.

Of course, overseeing such rising costs is a very uncomfortable place for any party to find itself in. But for the Conservatives, who pride themselves on rewarding hard work and fulfilling the dream of home ownership, it’s political Kryptonite.

In normal times, the independent Bank of England ought to take the heat for rate rises, but Liz Truss’s mini-Budget will forever be linked to the panic on the markets and mortgage rises.

Rishi Sunak has compounded the problem by declaring that it is “on me personally” if his target of halving inflation this year is not met. Not on the Bank, on him. New figures showing wages are higher, normally a good thing for a Government, add further to expectations of higher inflation and interest rates.

Bank of England Governor Andrew Bailey on Monday sounded gloomy about the tight Labour market, further fuelling City speculation that interest rates will go up again next week. For homeowners and struggling businesses who rely on loans, the pain keeps on coming.

The recent local elections suggested that the Truss disaster had blown up the bedrock of the Tory core vote in Middle England, and Sunak is still struggling with the fallout. What worries some MPs is that the “Truss mortgage penalty” is turning into a “Tory mortgage penalty”.

Before Boris Johnson’s headline grabbing resignation late last week, the main story in town would have been the sudden, worrying withdrawal of HSBC mortgage offers of residential and buy-to-let products last week. Santander did the same on Monday.

And although Johnson’s Privileges Committee comeuppance may still dominate the news for some time, many ordinary people are much more concerned about whether they can keep their housing payments up. Mortgage repossession, not the Tory “succession”, is their primary focus.

But the political stakes are very high for the Conservatives. During the Urgent Question, Treasury Minister Griffith thought it was amusing the Lib Dem Treasury spokesperson Sarah Olney pointed out that the constituency of Mid-Bedfordshire had the third highest share of mortgage holders in the country.

Mid Beds is yet another area where young families priced out of other areas in London and the South East have bought homes because they’re cheaper. The downside is that it makes them vulnerable to rate hikes.

Griffith had spotted that the Lib Dems are determined to win a by-election in Mid Beds triggered by Nadine Dorries’ resignation. But his reply to Olney – “I am sure that residents in Mid Bedfordshire have welcomed the stability that we have brought to the economy and the fact that we have supported householders through the past two difficult years” – reeked of complacency.

Indeed, it felt like a PR own goal to send Griffith to defend the Government. He is a millionaire ally of Boris Johnson who has the distinction of being the only Treasury minister left from the Truss era. No wonder he repeatedly refused to apologise for her tenure or to fully distance Sunak from the chaos caused.

Griffith rightly mentioned the national minimum wage increase this April had delivered a pay boost to two million people. He also pointed to the £95bn in support given in total in recent years, including help with energy bills. Yet his points failed to land because of the backdrop of continuing unease.

Yet Griffith is not alone in the Government in believing things aren’t as grim as they seem. Some Tories think that the party can secure victories in all three by-elections this summer in Mid-Beds, in Uxbridge and in Selby in Yorkshire (sparked by the resignation of another Johnson ally, Nigel Adams).

It’s argued that opposition to the Mayor of London’s ultra-low emission zone could ride to the party’s rescue in Johnson’s seat. Both Mid-Beds and Selby have very large Tory majorities.

There are some Conservatives who believe that if all or most of the seats can be retained, Sunak can start to build a narrative that he’s really steadied the Tory ship and is steering it to calmer waters with both the Truss and Johnson eras firmly, finally over.

Those with really long memories recall that in May 1964, Tory PM Alec Douglas-Home’s seven-month old administration faced four by-elections in one day at what looked like the fag-end of an exhausted, scandal-wracked Tory government mired in economic problems.

To everyone’s surprise, they held on in Devizes, Winchester and Bury St Edmunds and only narrow lost their seat in Rutherglen in Scotland. Many realised Harold Wilson’s Labour may not have an easy general election after all. In the end, Wilson squeaked in with a tiny majority.

Some on the backbenches even speculate that Sunak may want to go for an early, October election this year, if polls narrow. The chatter is that he could announce a snap election at the Tory conference, robbing Labour’s own conference (which unusually follows the Tory gathering this year) of usual TV dominance. Even Labour MPs have discussed the possibility.

One former Tory minister tells me “Rishi should avoid getting boxed in like John Major and avoid ‘doing a Gordon’ [Brown]”, when the ex-Labour PM waited too long to call an election and was punished as a result.

An election this autumn may sound outlandish, but thanks to inflation and mortgage rises there is a serious danger that for the Conservatives things can only get worse.

Just a third of mortgage holders have been hit by higher rates, and many more will get stung over the next year. If there are more “Rishi repossessions”, even more voters may want to evict the PM from No 10.

Investment Synergy - what a sorry state we all seem to be living in - a quote to rebalance:

"The Seven Social Sins are; Wealth without work, Pleasure without conscience, Knowledge without character, Commerce without morality, Science without humanity, Worship without sacrifice, Politics without principle !"

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