London Daily

Focus on the big picture.
Wednesday, Feb 01, 2023

Why a housing crash scares Britain like nothing else

Why a housing crash scares Britain like nothing else

Warnings of an interest rate shock spell trouble for millions of households.

Even in the midst of a full-blown financial crisis, so much of British politics is about home ownership, in the end.

Following an extraordinary slide in Sterling and panic in the gilt markets in the wake of Prime Minister Liz Truss’ tax-cutting "mini-budget," the Bank of England announced emergency measures Wednesday to prop up ailing pension funds and stabilize the U.K. economy.

But while markets pore over currency and bond prices and mull the implications for the complex global financial ecosystem, for a large number of heavily-indebted Brits, it is a different set of figures that matter most — those related to house prices, and mortgage interest rates.

“I can't think of anything worse for Conservative economic competence than to be responsible for everybody's mortgage bills going up chaotically thanks to a recklessly-delivered speech,” said Giles Wilkes, a former government adviser who is now a senior fellow at the Institute for Government and partner at Flint Global.

Britain is a nation where land has always mattered. For centuries, only the landowning classes were permitted to vote, and even over recent decades, lawmakers have been careful to heed the old adage that an Englishman’s home is his castle. In the 1950s, Housing Minister Harold Macmillan was catapulted up the Cabinet ranks and into Downing Street on the back of a successful housebuilding program. In the 1980s, Margaret Thatcher reaped the electoral rewards of allowing millions of social housing tenants to buy the homes they were living in.

But prices have spiraled dramatically over the past 20 years, and Brits are now saddled with huge household mortgage debts. According to market data company Statista, the U.K. topped a Europe-wide list of outstanding residential mortgage lending at the end of 2021. And this new generation of homeowners has only ever known the rock-bottom interest rates that were normalized following the 2008 financial crash. For millions of households, the prospect of a sudden hike is daunting.

“[People] care desperately about their houses," Wilkes said. "The mortgage repossession crisis of the early 1990s stained the Tories for years because that was just brutal, people just not being able to afford the house they actually live in.”

With the Bank of England now all but certain to hike rates dramatically in an effort to tackle rampant inflation, Brits are anxiously checking mortgage agreements and calculating their household exposure. Dire warnings abound of a collapse in house prices; of home repossessions; of deep cuts to household spending triggered by spiraling mortgage bills.

The mortgage market saw hundreds of products withdrawn overnight on Tuesday in the expectation of a rate rise, dramatically lowering the choice of rates for those buying or remortgaging, according to the financial information service Moneyfacts.

The political implications of a mortgage crisis could be devastating for the ruling Conservative Party.

“It's absolutely toxic, not least because this is very 'core Tory,'" Wilkes said. "They aspire, and their goal in life is to buy one of these new houses and get a job and pay their way."

“Many people will face financial ruin,” added one former Tory MP, who was working in Westminster at the time of the "Black Wednesday" Sterling crisis of September 1992.

“If you are somebody with a mortgage who voted Conservative in 2019, maybe the first time that you've ever done it — well, you're not going to be voting for the Conservatives again.”

MPs are already reporting a steady stream of emails from worried constituents. This in turn is causing real jitters in parts of the parliamentary party, with one former Cabinet minister reporting mortgage rates were a “big, big concern” this week on the messaging groups of Tory MPs.

Home-owning dream

Their fears may well be founded given the considerable numbers who could be affected by a sudden and large rate hike.

Of the estimated 24 million households in England, 15.5 million (65 percent) were owner-occupiers in 2020-21, according to the government's English Housing Survey. Of these, 35 percent of households were outright owners, while 30 percent were buying with a mortgage.

UK Finance, the banking and finance trade body, thinks about 600,000 fixed rate deals were due to expire in the second half of this year, while 1.8 million are due to expire in 2023. Last year almost half (45 percent) of those opting for a fixed rate deal only signed up for two years.

Money-market predictions that the Bank of England base rate could almost treble to 6 percent next year would therefore leave millions of people badly exposed.

Following panic in the markets after UK Prime Minister Liz Truss’ chancellor Kwasi Kwarteng published a new tax-cutting ‘mini-budget’, the Bank of England announced emergency measures to prop up ailing pension funds and stabilize the economy

Neal Hudson, a housing market analyst and visiting fellow at Henley Business School, warned such a rise could see mortgage payment affordability hit similar “stress levels” to those seen ahead of the two most recent housing market downturns, in the late 1980s and late 2000s.

“There's a real risk of housing market activity collapsing, and potentially also price falls, and neither of those are particularly good for the housing market generally, or for the wider economy,” Hudson said. Capital Economics and Credit Suisse both estimate house prices could fall by between 10 percent and 15 percent in 2023.

“An awful lot of our wealth is tied up in the housing market," Hudson added. "And there's definite links between the housing market and consumer spending, and generally feelings of wealth."

And as tends to be the case in this type of crisis, not everyone is going to feel the pain equally.

Ben Zaranko from the Institute for Fiscal Studies think tank said the government was essentially redistributing away from those who have benefited from low interest rates toward higher earners who will benefit disproportionately from the tax cuts introduced by Truss' Chancellor Kwasi Kwarteng.

There would be “a shock” coming for “people who earn not an enormous amount, but have been able to borrow at a lower rate, which supports a better lifestyle — things like having a nice car and going on holiday,” he predicted.

Robert Colvile, director of the center-right Centre for Policy Studies think tank, said the picture will be very different for the significant number of — largely older — people who now own their homes outright.

“If interest rates go up and house prices come down, the people who will suffer very probably are younger people, people who are still paying mortgages, who are going to have to refinance, who are refinancing on an asset which is worth less," he said. "You even have the specter of negative equity."

Renters may not emerge unscathed either, Les Mayhew, a professor of statistics at Bayes Business School, points out.

Buy-to-let landlords are set to be hit by rising mortgage rates too, he said, and could raise their rents substantially in order to stay afloat.

Long time coming

While the sharp shock is causing alarm, many think this has been a long time coming.

House prices have been “defying gravity” driven by longer mortgage terms and years of low borrowing rates, Mayhew, who is also head of global research at the International Longevity Centre, warned. On the supply side, a lack of housebuilding and an aging population refusing to downsize have further driven up prices.

“In the short term, I would say we are long overdue for a crash. We've now reached this point where interest rates have gone up higher and you can't have infinitely long mortgage contracts. There are not many levers or mechanisms left to pull,” he warned.

“There will be an adjustment, whether it will be a big one or a small one, it's very hard to tell,” he said.

Colvile agrees there is a big difference between house prices simply coming off the boil and the predictions of prices plummeting.

A 10 percent fall would only take people back to prices in August 2021, he points out, and the constituency for higher house prices in the U.K. is “pitifully small,” with opinion polls suggesting most people want prices to come down.

Only one in five who responded to a YouGov tracker poll said they would be better off if house prices rose, with a similar number saying they would be better off if they fell. Almost half of those surveyed said it would make little difference to them.

But most agree there are far better ways to deliver affordable homes.

“Obviously it is a much better thing if house prices go down because we have suddenly built more houses, than because there is a sudden economic calamity,” Colvile said.


Related Articles

London Daily
WARNING GRAPHIC CONTENT - US Memphis Police murdering innocent Tyre Nichols
You're Beautiful - James Blunt (Boyce Avenue acoustic cover)
Almost 30% of professionals say they've tried ChatGPT at work
You Are So Beautiful
Interpol seeks woman who ran elaborate exam cheating scam in Singapore
Postmodern Jukebox European Tour Version
What is ChatGPT?
An old French tune (by Georges Brassens) Pomplamoose ft. John Schroeder
Bill Gates is ‘very optimistic’ about the future: ‘Better to be born 20 years from now...than any time in the past’
Sattahip Motor Show 20
China is opening up for foreign investors.
SONATE AU CLAIR DE LUNE - Moonlight sonata
Tesla reported record profits and record revenues for 2022
A kiss to build a dream on
Germany confirms it will provide Ukraine with Leopard 2 tanks
Wiz Khalifa - See You Again ft. Charlie Puth, Furious
Prince Andrew and Virginia Giuffre Photo Is Fake: Ghislaine Maxwell
Wonderful Tonight - Eric Clapton (Boyce Avenue acoustic cover)
Opinion | Israel’s Supreme Court Claims a Veto on Democracy
Mean Blues
Moonwalker Buzz Aldrin Gets Married On His 93rd Birthday
La Chansonnette
Who’s Threatening Israeli Democracy?
Pattaya Addicts
Federal Reserve Probes Goldman’s Consumer Business
Franz Liszt - Liebestraum - Love Dream
China's first population drop in six decades
Dream a little dream of me
Microsoft is finalising plans to become the latest technology giant to reduce its workforce during a global economic slowdown
Tu Vuo' Fa' L'Americano - Hetty & the Jazzato Band
Israelis rally in three cities against Netanyahu legal reforms
Unchained Melody sung like you've NEVER heard!
China's foreign ministry branch in Hong Kong urges British gov't to stop the biased and double standards Hong Kong report
Dave Brubeck - Take Five
Tesla slashes prices globally by as much as 20 percent
Édith Piaf - Non, Je Ne Regrette Rien (Sofie)
Japan prosecutors indict man for ex-PM Shinzo Abe murder
Rondo Alla Turca
1.4 Million Copies Of Prince Harry's Memoir 'Spare' Sold On 1st Day In UK
Kiss of fire
After Failing To Pay Office Rent, Twitter May Sell User Names
Ed Sheeran - Perfect (Amadeus violin cover instrumental)
Lisa Marie Presley, singer and daughter of Elvis, dies aged 54
Tom Jones - I´ll Never Fall In Love Again 1967, 1989, 2001
FIFA president questioned by prosecutors
Israel Cachao López - Guajira Clásica
Britain's Sunak breaks silence and admits using private healthcare
Edward Maya - Stereo Love (feat. Vika Jigulina) (Extended Mix)
Dirty bomb fears as URANIUM is found in cargo at Heathrow
Strauss - Radetzky March - Karajan
Hype and backlash as Harry's memoir goes on sale. Unnamed royal source says prince 'kidnapped by cult of psychotherapy and Meghan'
La vie en rose
Saudi Arabia set to overtake India as fastest-growing major economy this year 
Despacito (Piano Cover) - Peter Bence
Google and Facebook’s dominance in digital ads challenged by rapid ascent of Amazon and TikTok
The Temptations - My Girl (Smokey Robinson Tribute) 2006 Kennedy Cent
FTX fraud investigators are digging deeper into Sam Bankman-Fried's inner circle – and reportedly have ex-engineer Nishad Singh in their sights
Orlando Cachaito Lopez Redencion
TikTok CEO Plans to Meet European Union Regulators
UK chaos: Hong Kong emigrants duped by false prospectus
RADETZKY MARCH-2008-Wien, New Year Concert
France has banned the online sale of paracetamol until February, citing ongoing supply issues
Only you (And you alone)
Japan reportedly to give families 1 million yen per child to move out of Tokyo
Beautiful in White x Canon in D (Piano Cover by Riyandi Kusuma)
Saudi Arabia’s female ambassadors: Who are the five women representing the Kingdom?
Strangers In The Night
Will Canada ever become a real democracy?
Charles Aznavour - La Boheme
Hong Kong property brokerages slash payrolls in choppy market
Summer time
U.S. Moves to Seize Robinhood Shares, Silvergate Accounts Tied to FTX
Sting and Stevie Wonder - Fragile (from Sting's 60th birthday concert)
Effect of EU sanctions on Moscow is ‘less than zero’ – Belgian MEP
Aux Champs Elysees
Coinbase to Pay $100 Million in Settlement With New York Regulator
Stand By Me - Ben E. King (Boyce Avenue acoustic cover)
FTX assets worth $3.5bn held by Bahamas securities regulator
La Mer (Beyond the Sea) – Avalon Jazz Band
A Republican congressman-elect is under investigation in New York after he admitted he lied about his education and work experience.
Brazilian football legend Pele, arguably the greatest player ever, has died at the age of 82.
Nathalie Song by Enzo Petrachi Stjepan Hauser Cello
Hong Kong to scrap almost all its Covid rules
Shape of My Heart - Sting (Boyce Avenue acoustic cover)
EU calls screening of travellers from China unjustified
Radiohead - Creep
US imposes Covid testing for visitors from China
Quizás,Quizás,Quizás - Andrea Bocelli - Jennifer Lopez
Clashes erupt in central Paris after shooting at a Kurdish cultural center
Perhaps, Perhaps, Perhaps - Multi-Couples
Ukraine President Volodymyr Zelenskyy Addresses Joint Session of Congress - FULL SPEECH
Pentatonix Havana
If a country is denied the right to independence by another, it is not in a union. It is in a dictatorship.
Paula Cole - Autumn Leaves
Where is Rishi? Chancellor Jeremy Hunt's excuses about the UK's economic challenges just don't make sense
Oscar Benton Bensonhurst Blues
Former FTX CEO Bankman-Fried finally arrested in Bahamas after U.S. files charges
Nina Simone - ”I Put A Spell On You”. Vezi aici cum cântă Jeremy Ragsd
NIGHTWISH - The Phantom Of The Opera
Motorshow 2016 Tanjay Negros Oriental
Monica Bellucci - Ti Amo
Michael Jackson - Billie Jean Milena The Voice France 2018
Michael Buble (Help Me Make It Through The Night) feat Loren Allred
Memories Canon In D - Maroon 5 (Boyce Avenue piano acoustic cover)
Matteo Simoni - Marina
Maroon 5 - One More Night
Maroon 5 - Memories
Mark Knopfler - Brothers In Arms (Berlin 2007 Live)
Mark Knopfler & Emmylou Harris - Romeo And Juliet (Real Live Roadrunni
Marina, Marina - The LUCKY DUCKIES intimist live concert at Guimarães
Major Lazer & DJ Snake – Lean On Mauranne The Voice France 2016
Love Theme from Romeo and Juliet - Joslin - Henri Mancini, Nino Rota
LoLa & Hauser - Love Story
Linkin Park Jay-Z - Numb Encore (Live 8 2005)
Hallelujah Mennel Ibtissem, The Voice France Leonard Cohen
Leonard Cohen - Dance Me to the End of Love
Leonard Cohen & Natasha Rostova - Dance me to the end of love
La casa de papel - Bella Ciao
La Camisa Negra
L'italiano (Toto Cutugno) - The Gypsy Queens
Juanes - La Camisa Negra
Jonathan and Charlotte - Britain's Got Talent 2012 Live Semi Final - U
John Powell - Assassin's Tango
Joe Cocker - You Can Leave Your Hat On (LIVE in Dortmund)
Joe Cocker - Unchain My Heart 2002 Live
Joe Cocker - A Whiter Shade Of Pale
Jay Z & Alicia Keys - Empire State of Mind LIVE
Jason Mraz - Im Yours (live)
Jarrod Radnich - Bohemian Rhapsody - Virtuosic Piano Solo
James Blunt - You're Beautiful
James Blunt - You're Beautiful & Bonfire Heart (Live at The Nobel Peac)
If You Go Away - Helen Merrill & Stan Getz (Tribute to Virna Lisi)
I Say a Little Prayer
Hotel California ( Eagles ) 1994 Live
Historia de un amor - Luz Casal. Vezi interpretarea Biancăi Sumanariu
Here Comes The Sun - The Beatles (Boyce Avenue acoustic cover) on Spot
Heart - Stairway to Heaven Led Zeppelin - Kennedy Center Honors
HAVANA by Camila Cabello Zumba Pre Cooldown TML Crew Kramer Pastra
HAUSER and Señorita - I Will Always Love You
HAUSER - Waka Waka
HAUSER - Lambada
HAUSER - Historia de un Amor
HAUSER - Despacito
Great Pretender
Georgia May Foote & Giovanni Pernice Samba to 'Volare' - Strictly Come
Gary Moore - Still Got The Blues
Fugees - Killing Me Softly With His Song
French Latino - Historia de un Amor
For A Few Dollars More The Danish National Symphony Orchestra (Live)
Flashdance • What a Feeling • Irene Cara
Filip Rudan - “Someone You Loved” Audicija 4 The Voice Hrvatska Sez
Eric Clapton - Wonderful Tonight
Enya - Only Time
Enrique Iglesias - Bailando (English Version) ft. Sean Paul
Enrique Iglesias - Bailamos
Elena Yerevan Historia de un amor
Ed Sheeran - Shape of You (Official Music Video)
Ed Sheeran - Perfect Symphony [with Andrea Bocelli]
Ed Sheeran - Perfect (Official Music Video)
Easy On Me - Adele (Boyce Avenue 90’s style piano acoustic cover) on S
ERA - Ameno
ELENA YEREVAN- Cancion Del Mariachi-IN STUDIO-2017 DPR
Dust In The Wind - Kansas (Boyce Avenue acoustic cover)
Don't Let Me Be Misunderstood
Despacito x Shape Of You - Pentatonix
Deep Purple - Child In Time - Live (1970)
David Foster When A Man Loves A WomanIt's A Mans World (SealMichael Bo
Dance me to the end of Love ( Pi-Air Design )
Coolio - Gangsta's Paradise (feat. L.V.) [Official Music Video]
Conquest Of Paradise (Vangelis), played on Böhm Emporio organ
Cielito Lindo
Chico & The Gypsies - Bamboleo
Canción Del Mariachi - Antonio Banderas, Los Lobos • Desperado
Camila Cabello - Havana (Audio) ft. Young Thug
Camila Cabello - Havana ( cover by J.Fla )
California Dreamin' - The Mamas & The Papas José Feliciano (Boyce Ave
Buster Benton - Money Is The Name of The Game
Hallelujah Pentatonix
Bobby McFerrin - Don't Worry Be Happy (Official Music Video)
Bob Dylan - Knockin' On Heaven's Door Emilia The Voice Kids France
Besame Mucho - Cesaria Evora
Ben E. King - Stand by Me Sax Cover Alexandra Ilieva Thomann
Bella Ciao
Beautiful in White x Canon in D (Piano Cover by Riyandi Kusuma)
Bad Romance - Vintage 1920's Gatsby Style Lady Gaga Cover ft. Ariana Savalas & Sarah Reich(1)
BAMBOLEO - Gipsy Kings • Antonio Banderas, Katya Virshilas
BAILANDO (original)
Awesome Ukrainian yodeler - SOFIA SHKIDCHENKO (with English subtitles)
Avicii - The Nights
Atom - The Great Gig in the Sky
Aretha Franklin - (You Make Me Feel Like) A Natural Woman (Official Ly
Antonio Banderas - Cancion del Mariachi (Desperado)
André Rieu - Zorba's Dance (Sirtaki)
André Rieu - Can't Help Falling In Love
André Rieu & Mirusia - Ave Maria
Andrew Reyes Elton John - Don't Let The Sun Go Down The Voice 2020 (
Andreas Kümmert Whiter Shade Of Pale The Voice of Germany 2013 Showd
And I Love You So
All About That Bass - Postmodern Jukebox European Tour Version
Alan Walker - Faded (Piano Cover)
Ain't No Sunshine -- Bill Withers (cover by Canen 12 y.o.)
African music
Adriana Vidović - “Creep” Audicija 4 The Voice Hrvatska Sezona 3
Adriana Vidović - “Believer” Nokaut 3 The Voice Hrvatska Sezona 3
A Fistful of Dollars - The Danish National Symphony Orchestra and Tuva
4 Beautiful Soundtracks Relaxing Piano [10min]
2CELLOS - Whole Lotta Love vs. Beethoven 5th Symphony [OFFICIAL VIDEO]
2CELLOS - Smooth Criminal (Live at Suntory Hall, Tokyo)
2CELLOS - Smells Like Teen Spirit [Live at Sydney Opera House]
13 Year Old Girl Playing Il Silenzio (The Silence) - André Rieu
094.All About That Bass
(Ghost) Riders In the Sky (American Outlaws Live at Nassau Coliseum, 1
(Everything I Do) I Do It For You - Bryan Adams (Boyce Avenue ft. Conn
What a wonderful world
Moon river