Mortgage bailout demands prove Covid left us addicted to welfare
Ben Marlow
5 min read
Rishi Sunak has ruled out a government intervention in the mortgage market - Danny Lawson/PA Wire
No wonder the Treasury is facing calls to step in and help struggling mortgage holders. Every day brings news of greater pain for millions of homeowners as Britain finds itself in the grip of a devastating mortgage crunch.
That’s territory that – while briefly witnessed after Liz Truss’s mini-Budget fiasco – is essentially a decade-and-a-half high.
There is an entire generation of homeowners that have never experienced anything like it. The middle classes are heading for ruin and there’s a general election around the corner.
First-time buyers who bought at the top of the market already face the spectre of negative equity. A mortgage shock and subsequent house price crash would end any chance of this badly wounded Government being re-elected.
With the Bank of England expected to raise the base rate again on Thursday – its 13th hike since December 2021, and probably not its last before the end of the year – the pain is only going to get worse.
Yet Rishi Sunak has sensibly ruled out any bailout. When Liberal Democrat leader Sir Ed Davey leaps in calling for yet more state support for families, what we are witnessing is a form of Covid PTSD in which people who have forgotten what it is like to stand on their own two feet.
The Treasury’s generosity during the pandemic created a world in which families became so used to big financial handouts that many have now come to expect it whenever their finances hit the rocks.
First it was furlough, then Covid loans and grants, followed by the stamp duty holiday, business rates relief for firms, and finally eat-out-to-help out as panicked ministers threw money at the problem.
It was a never-ending supply of freebies and cheap loans, turning us into a nation hooked on handouts.
But what Davey and others seem to have forgotten is that coronavirus was a genuine once-in-a-lifetime event. The Government had no choice but to step in and act quickly to save the economy from total ruin. Because of the nature of the pandemic it was able to act without worrying too much about how or when the bill for it all would be repaid.
Covid support was essentially an open-ended uncosted Treasury guarantee. We were living well beyond our means.
That is no longer possible. Families are now labouring under the heaviest tax burden since the war. The Government has to draw the line somewhere. Indeed, that should have happened long ago but instead it chose to ride to the rescue again during the energy crisis.
That was a mistake. The energy support scheme was far too broad and another finger in the air exercise from a Cabinet that had run out of ideas.
I lost count of how many people of my parents’ generation kept insisting that they didn’t need the money. Many wanted to give it back or donate it to those that were genuinely struggling.
It should have been far more tailored towards those who would have otherwise been unable to pay their bills, or were having to choose between heating and eating.
But even if the Treasury wanted to step in again with a mortgage protection fund, as Davey has dubbed it, it probably wouldn’t be able to.
With government borrowing costs already at a 15-year high, another giant rescue package would almost certainly spark a return of the dangerous market chaos of the sort that brought down Truss and Kwasi Kwarteng.
It would also, as the Chancellor correctly highlights, “prolong the inflationary agony”, which is the last thing anyone needs right now. This is particularly true of the UK – an inflation outlier compared to the rest of Europe.
So there is almost certainly no silver bullet this time around, even if ministers were looking for one.
Still, that won’t stop pressure to intervene from building as more and more people struggle, and campaigners like Martin Lewis continue to raise the alarm. The consumer champion has likened the situation to a “ticking timebomb”, which is now “exploding”.
Yet Lewis makes an important point, which is that the whole purpose of the Bank of England ratcheting up interest rates is that we are all left considerably poorer so that there is less money sloshing around an economy crippled by sky-high inflation.
The best that homeowners can probably hope for is that Jeremy Hunt’s pledge to turn the screws on the banks brings some common sense to proceedings.
Having failed to fully pass on rate rises to savers, lenders couldn’t hike them quickly enough for borrowers. It is the industry’s own version of the rocket and feather approach that has long plagued petrol prices.
There is plenty of help that the banks could provide, whether it’s extending payment holidays, allowing borrowers to temporarily reduce the amount they pay in or introducing interest-only loans that stretched homeowners can switch to.
Michael Gove has suggested a move towards the sort of longer-term fixed deals that are commonplace in countries like Canada would enable households to better weather wild swings in their repayments. There is no magic bullet.
But Sunak must hold his nerve. Britain needs to wean itself off Covid welfarism and stop living on the never-never.
