Mortgage repayments could double for some London homeowners if rates rise. Photo: Wikimedia
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Homeowners beware: Boris’s vision for the London economy

What would a rate rise mean for Londoners? London Labour Assembly member Andrew Dismore warns homeowners of soaring mortgage repayments, defaults and repossessions.

With speculation rife on the timing of interest rate rises, the Resolution Foundation’s paper yesterday on how indebted households will fare once the base rate goes up was timely. The report will make for a sobering read for Mark Carney and fellow inhabitants of the Old Lady. As many as two million mortgage payers could struggle once interest rates climb from 0.5 per cent to 3 per cent, the thinktank said. Without a state-backed plan to alleviate the pain for over-leveraged households, many will be forced to hand back the keys to their homes.

For Labour London Assembly members, this is a particularly hot topic. Last week, at the Assembly’s Economy Committee, I asked the Mayor’s Economic Adviser, Dr Gerard Lyons, what he meant when he disagreed with the Governor of the Bank of England’s assessment  that the Bank’s “new normal” rate level is likely to be 2.5 per cent. Lyons said “the level at which UK interest rates need to eventually peak should be high, not low…I would sooner have them at 5 per cent or 6 per cent than 2 per cent or 3 per cent.”

Lyons, a distinguished City economist by trade, may not have realised the political implications of his honestly expressed view. I immediately crunched the numbers, calculating how, given that the average price of a London property now stands at £492,000, a rate of 6 per cent would double the average London monthly mortgage payment from around £2,000 to £4,300 per month.

At Mayor’s Question Time, I asked Boris Johnson if he agreed with Lyons. Despite obfuscation, the Mayor eventually endorsed the Lyons view that a base rate of 5-6 per cent would be appropriate at the end of the economic cycle.

Doubling of mortgage repayments would spell disaster for those who bought homes on variable mortgages at low rates. Even a moderate rate rise would result in defaults and repossessions, set against the background of rising cost of living and stagnant wages.

The Resolution Foundation’s report highlights how the problem is exacerbated in London. Around a third of mortgaged households are predicted to be “highly geared” by 2018. The thinktank notes how this is “particularly worrying, as such households are least likely to have spare resources to fall back on in the event of an increase in mortgage costs”.

Boris Johnson argues that even if things became this severe, defaults and repossessions would cool the housing market and halt house price inflation – which would surely be welcomed. The Mayor knows full well this is simplistic. Having re-inflated the economy on the back of an asset bubble, such a tightening of monetary policy would not merely reduce upward pressure on house prices, but by diverting more household income to servicing debt, would reduce aggregate demand and undermine economic recovery.

Lyons and Johnson do not sit on the Monetary Policy Committee nor set interest rates, so does this matter? If you believe that Johnson is set on becoming Conservative leader (and probably taking Gerard Lyons with him), then yes, these views give a valuable insight into his economic outlook.

Boris Johnson is content to stand by and watch vulnerable London homeowners squeezed till the pips squeak so as to cool inflation in the wider economy. Those who remember struggling with mortgage repayments in the Thatcher-era of high interest rates will find this alarming.

The challenge for a 2015 Labour government will be to inject stability in the over-heated London housing market without wrecking the recovery in the wider economy. This is why Labour’s proposals to level the playing field with an active industrial strategy, investment in chronically-underfunded infrastructure, and further devolution to local government are an attractive offer to the electorate.

Andrew Dismore is Labour London Assembly member for Barnet and Camden and the party's parliamentary candidate for Hendon

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Why it's far too early to declare Ukip dead

The party could yet thrive if Brexit disappoints those who voted Leave.

"Nothing except a battle lost can be half as melancholy as a battle won," wrote the Duke of Wellington after Waterloo. Ukip can testify to this. Since achieving its founding aim - a British vote to leave the EU - the party has descended into a rolling crisis.

Theresa May's vow to pursue Brexit, and to achieve control of immigration, robbed Ukip of its political distinctiveness. But the party's greatest enemy has been itself. Its leader Paul Nuttall did not merely lose the Stoke by-election (despite the city recording the highest Leave vote), he self-destructed in the process. Contrary to his assertions, Nuttall did not achieve a PhD, was never a professional footballer and did not lose "close personal friends" at Hillsborough. Ukip's deputy Peter Whittle pleaded last weekend that voters needed more time to get to know Nuttall. No, the problem was that they got to know him all too well. A mere three months after becoming leader, Nuttall has endured a level of mockery from which far stronger men would struggle to recover (and he may soon be relieved of the task).

Since then, Ukip's millionaire sugar daddy Arron Banks has threatened to leave the party unless he is made chairman and Nigel Farage is awarded a new role (seemingly that of de facto leader). For good measure, Farage (a man who has failed seven times to enter parliament) has demanded that Ukip's only MP Douglas Carswell is expelled for the crime of failing to aid his knighthood bid. Not wanting to be outdone, Banks has vowed to stand against Carswell at the next election if the dissenter is not purged. Any suggestion that the party's bloodlust was sated by the flooring of Steve Woolfe and Diane James's 18-day leadership has been entirely dispelled.

For all this, it is too early to pronounce Ukip's death (as many have). Despite May's ascension and its myriad woes, it has maintained an average poll rating of 12 per cent this year. This is far from its 2014 zenith, when it polled as high as 25 per cent, but also far from irrelevancy. Incapable of winning Labour seats itself, Ukip could yet gift them to the Conservatives by attracting anti-Tory, anti-Corbyn voters (in marginals, the margins matter).

Though Theresa May appears invulnerable, Brexit could provide fertile political territory for Ukip. Those who voted Leave in the hope of a radical reduction in immigration will likely be dismayed if only a moderate fall results. Cabinet ministers who boasted during the referendum of their desire to reduce immigration have already been forced to concede that newcomers will be required to fill vacancies for years to come. Ukip will be the natural vehicle for those aggrieved by Brexit "betrayal". Some Leave voters are already dismayed by the slowness of the process (questioning why withdrawal wasn't triggered immediately) and will revolt at the "transitional period" and budget contributions now regarded as inevitable.

The declarations of Ukip's death by both conservatives and liberals have all the hallmarks of wishful thinking. Even if the party collapses in its present form, something comparable to it would emerge. Indeed, the complacency of its opponents could provide the very conditions it needs to thrive.

George Eaton is political editor of the New Statesman.