THE prospect of a young trainee or graduate being able to afford a home of his or her own has been bleak for several years and can only be bleaker now that the cost of mortgages is set to rise. HSBC is to raise mortgage rates for the second time in a week today. It withdrew its rates for new loans yesterday, saying the cost of funds has increased and it has had to reflect that in its lending rates. It is unlikely to be alone. Interest rates have risen from a record low of 0.1 per cent in December 2021 to the current 4.5 per cent. And in turn the average rate on a two-year residential fixed mortgage reached 5.9 per cent on Tuesday, up from 3.25 per cent a year ago. At least in the short term, the only way is up.
The economic effects of an increase will be felt more widely than in the housing market. Those whose mortgage payments rise will have less money to spend — and it is that discretionary spending which has bolstered, for instance, the drinks sector this season. Young employees in London who cannot even contemplate a home of their own face paying high rents, moving in with their parents (which may or may not delight both parties) or move out of London and spend much of their disposable income on fares. And this in turn will affect the number of workers available to fill vacancies.
On the bright side, we are unlikely to see a recession like we had in 2009, when many people were unemployed. Demand for housing will be sustained, given that net immigration last year was 600,000 and employment rates are high, a very good thing. Yet it’s still likely that house prices will fall this year, perhaps by 10 per cent, and more including inflation.
The repercussions of all this politically aren’t hard to predict; disgruntled mortgage payers blame the Government. Astutely, Labour is linking its problems with the disastrous interlude that was Liz Truss’s premiership. The real issue for Tory MPs now is not Boris Johnson’s vicissitudes but a mortgage time bomb.
Obviously one way to ease the situation is simply to build more homes, ideally high-density housing, within London including social housing (which, given proper planning, need not be soulless); that must remain a priority. Meanwhile, lenders must be as flexible and accommodating as possible to mortgage payers who are struggling to pay their way. Extending the time period available to repay their loans makes a lot more sense than repossessing those homes. The new boy on the mortgage market is the 35-year loan; that option may have to be extended to existing mortgage payers as well as new ones.
Best in class
CONGRATULATIONS to Barham Primary School in Wembley, which is on the shortlist in one of five categories in the prestigious World’s Best School prize. It’s already in the top 10 for “community collaboration” in recognition of the work it does to encourage strong relationships with parents despite its diverse make-up, with 31 languages spoken among its 930 pupils. London’s schools are the best in the country; this Wembley school demonstrates that they’re also among the best in the world.
