Heroes: ‘An Englishman’s Home is his Castle’ 

 

‘I tried but I could not find a way 

 

Looking back, all I did was look away’ 

 
 

Many things in this country are in a mess, the housing market is no different. 

 
This isn’t just a worry for homeowners but for the wider economy in general. So much of our economic policy is geared towards the housing market that if it wobbles it rocks the foundations of the economy. 

I have talked previously about the difficulties Millennials and Gen Z have getting on the home ownership ladder., which can be explained by the fact that the UK housing market is at its’ highest income multiple since the 1850s, at a time when real incomes have flatlined for 20-years. 

For those that don’t get on the housing ladder, it means a life-time of paying someone else rent, watching the value of someone else’s house increase, and never having any tangible assets to fall back on. 35% of UK households now rent, as a result demand vastly outstrips supply, and rents are soaring at a rate that is double inflation. The fact  that renting is becoming a fact of like for many younger millennials and Gen Z is likely to reshape the country’s political map.
 

‘35% of UK households now rent, as a result demand vastly outstrips supply’

 
According to National Statistics, in the boom times of the 1980s and 90s, average home typically cost  4x times average earnings (peaking briefly at 6). Since 2000 that’s risen to over 10 times earnings, higher than any point since the 1850s when only rich and wealthy had their own homes. 

Today, C.7.5 million people hold a record £1.7tn of mortgage debt. Much of this is more exposed to short-term movements in interest rates than in any other advanced country. Meaning that when interest rates rise millions of households suffer. 

By year end around  4.4 million households will have been forced to refix their mortgages at higher rates. Prior to Russia’s invasion of Ukraine and the return of inflation, 2-year fixed-rate mortgages were available at under 3%: today they cost close to 6%. The Resolution Foundation thinktank, assuming that the two-year fix will remain above 6% until next year, estimates that mortgage holders’ annual payments will jump by £15.8bn as their two-year fixes come to an end. Given that so few households have more than £2,000 of savings, the Institute for Fiscal Studies forecasts 2.9 million mortgage holders exhausting their savings completely. 

The Bank of England and its handling of inflation and interest rate is a demonstration of not knowing what you are doing, even its hapless governor, Andrew Bailey, accepted that mistakes had been made.  
 

‘The Bank of England and its handling of inflation and interest rate is a demonstration of not knowing what you are doing’

 
What mystifies me is that with supply-side inflation, interest rate policy is a blunt tool. As we have seen raising interest rates means peoples mortgage costs increase. But, as mortgage costs are factored into the RPI calculation it means that it fuels inflation! Hardly rocket science. 

If more borrowers were on longer-term fixed rates, as they are overseas, this wouldn’t be such an issue. C. 95% of British mortgages are either variable, or two-year fixed rates, meaning that rises in rates have a greater impact on household finances than anywhere else. 

Neither the chancellor or the Governor seem to understand the dynamics of the situation. The governor really doesn’t know what day it is, and the chancellor seems to think that a recession is a price worth paying to reduce inflation.  

Tory MPs in marginal seats are starting to panic over the ‘interest rate catastrophe‘, amid claims that the party has not understood the impact of spiralling mortgages. This is sparking a growing awareness 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. 
 

‘Tory MPs in marginal seats are starting to panic over the ‘interest rate catastrophe”

 
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. People [are] telling me their monthly mortgage payment is exceeding their salary. That is unsustainable.’ 

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.’ 

From a beleaguered homeowners perspective a light blue Labour party, which has opted to prioritise fiscal discipline over all other demands doesn’t offer much hope. 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. 

The impact of Brexit on inflation is often overlooked as people focus on Ukraine and the impact of Covid. However, Mark Carney, former governor of the BoE, said; ‘We laid out in advance of Brexit that this will be a negative supply shock for a period of time and the consequence of that will be a weaker pound, higher inflation and weaker growth‘. 

About a month before the referendum in 2016, the Bank of England – under Carney’s leadership – warned Britain could slide into recession if it voted to leave.  

In a typical ‘leave’ style, Jacob Rees-Mogg accused him of political bias and called for his removal for intervening. Carney responded saying the Bank had a responsibility to the country to lay out the likely economic realities. 

As the UK negotiated its future relationship with the EU, the Telegraph labelled Carney’s further warnings about the dangers of a no-deal Brexit a ‘doomsday analysis‘. 

Staying with Brexit there is the amusing, but irritating case of Norwegian former model Kari-Ann Moller, the wife Chris Jagger (brother of Rolling Stone Sir Mick) 

As a result of Brexit, Norwegians living in the UK were required to apply to the EU settlement scheme, despite Norway not being a member state, to remain living in Britain. 

Kari-Ann was stopped by British immigration officials earlier this year and told she was not allowed to remain because of her Norwegian passport. 

Writing in the Times, he said he had uploaded a picture of Roxy Music’s 1972 album – on which she appears, dressed in satin frills, on the cover – to support his wife, who has lived in the UK for 74 years, in her application. 

‘The whole thing is an absolute nightmare,’ she told the Times. ‘There is a risk that I may not be able to come back in if I go away. It is crazy because I don’t even speak Norwegian.’ 

Back to a more dour note we finish by considering what the future holds for the Tory’s. Within this I am discounting a return for Johnson, whatever his dwindling pool of acolytes think, there must be no way back for him. 
 

‘I am discounting a return for Johnson, whatever his dwindling pool of acolytes think, there must be no way back for him’

 
Putting the poison that is Brexit to one-side, the Tory’s are still pushing Thatcherism , even though the majority of her policies are now tired and unpopular. Utility privatisation has served no one other than owners and shareholder, the same applies to energy companies. The loss of 4m council homes has never been reversed. ‘Big bang’ left us overly dependent on finance and her industrial sabotage still resonates in desolate, left-behind zones. 

The Thatcherite mantra that all this should be ‘left to the markets‘, is outdated. Outsourcing of services deliberately avoided trade unions, cementing the bottom half of wages to the floor. After the post-war period her polices led to an increase in inequality, with hard-won working rights lost to zero-hours contracts, a gig economy and freelance insecurity. Yet, despite the recent strikes, more people think unions play a positive rather than a negative role in Britain today. 
 

‘hard-won working rights lost to zero-hours contracts, a gig economy and freelance insecurity’

 
The austerity of Cameron and Osborne was inspired by Thatcher: the smaller the state the better, they insisted. For decades, the UK collected far less tax than equivalent EU countries, which now explains the failings of the NHS, social care, education and everything else. Despite this, Tory MPs, clearly out-of-touch with the majority of the electorate are expecting Sunak’s promised tax cuts to be the party’s salvation; they expect a 2p income tax cut next March, and want more.  

Polls in key seats tell the real story; only 12% prefer cutting taxes and spending less on public services, with 38% wanting to keep tax and spending as they are. Another 36% want taxes raised, with more spent on public services. It may have taken the GFC, austerity, Brexit and Covid, but finally the public is rejecting Thatcherism. 

In addition, immigration, their latest fixation isn’t a top-5 issue. Climate change is, although the Tory’s current policy is to drop net zero. Brexit is seen as a negative against the Tories, it broke the party and it may take a political generation to get it out of their bloodstream. While the young who voted overwhelmingly to remain will not forgive or forget. 

Perhaps getting Brexit out of our system means that we could miss the nationalist populist wave sweeping some countries. A thoroughly discredited Boris Johnson makes it unlikely that an isolationist demagogue with a Little England stance will succeed. Take note Farage! 
 

‘the young who voted overwhelmingly to remain will not forgive or forget’

 
‘Onward’, the Tory one-nation thinktank, warns of the party’s existential collapse as millennials are unlikely to vote Conservative as they age. Younger voters are now more educated, and the more educated are less likely to vote Tory, or to turn Tory later. 

Campaign group Next Gen Tories says: ‘Age is the new dividing line in politics. It is now a stronger indication of voting intention than class, gender or race. For every 10 years younger a person is, they are nine points less likely to vote Conservative.’ Younger voters are culturally different: more green, less capitalist as they have less capital of their own, sunk by childcare costs, needing good, affordable state nurseries and services. 
 

‘We are in effect back in 1979, a new government with fresh ideas is required’

 
This doesn’t guarantees the permanent triumph of social democracy, Labour needs to seize  this turning point, they need to win the election and not rely on the Tory’s losing it. We are in effect back in 1979, a new government with fresh ideas is required. The Tory’s will only offer this after being in opposition forces them to reassess their thoughts. Only then might they reemerge as an electable modern, internationalist, one-nation Conservative party. 

‘I remember 

All those moments 

Lost in wonder 

That we’ll never 

Find again’ 

 
Philip has warned we’re going back to 1979, and apparently now we’re here. Take this:

‘I decided against any more talk of Johnson, and the excuses of dwindling bunch of mad followers.

He should never be allowed to stand for public office again. His behaviour and comments show that he has regard for parliament, democracy or the rule of law.

If ever there was a time to cleanse the party, this is it. Yes, it might offend a few hard-right loony party members, but their time is coming to an end. If Sunak is to convince people that he means what he says about integrity, etc., then he needs to stand-up and be counted.

Mercifully, our loonies seem merely that, whereas in America they threaten all sorts of seditious behaviour.  

There is Kari Lake, a TV news anchor turned far-right idiot, who lost the election for Arizona governor last year. She continues to insist without evidence her defeat was the result of fraud.

Speaking to Georgia Republicans on Friday, she said: “I have a message tonight for [US attorney general] Merrick Garland, and Jack Smith, and Joe Biden. And the guys back there in the fake news media, you should listen up as well, this one’s for you.

“If you want to get to President Trump, you’re going to have to go through me, and you’re going to have to go through 75 million Americans just like me.

“And I’m going to tell you, most of us are card-carrying members of the NRA [National Rifle Association]. That’s not a threat – that’s a public service announcement.

“We will not let you lay a finger on President Trump. Frankly, now is the time to cling to our guns and our religion.”

Really?

Lyrically, we start with “Re-Make/Re-Model” by Roxy Music from their self-named debut album to show our support for Kari-Ann Moller. We finish with Roxy’s “Song for Europe” to show our support for rejoining the EU. Enjoy!

 @coldwarsteve
 

 
 

Philip Gilbert is a city-based corporate financier, and former investment banker.

Philip is a great believer in meritocracy, and in the belief that if you want something enough you can make it happen. These beliefs were formed in his formative years, of the late 1970s and 80s

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