Liz Truss can’t control rising mortgage rates, but she will take the blame

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So much news, so little time. In the space of just two weeks Britain gained a new Prime Minister in the form of Liz Truss, mourned its longest-serving monarch Elizabeth II and started getting used to a new head of state, King Charles III.

Truss’s new government and the monarchy under Charles will be faced with a raft of social and economic problems caused by rising inflation and their fates – both the new Conservative prime minister and the man who must maintain public support for Britain’s royal family – will depend on how they deal with them.

Housing, specifically the cost of people’s homes, is, as ever, at the centre of it all.

The faces of those in charge might change, but the core issue (sadly) remains the same: for a growing number of people, the cost of keeping a roof over their head is increasingly unaffordable.

Private renters are particularly hard hit in England where, unlike in Scotland, the government has not moved to implement an emergency rent freeze. According to the Office for National Statistics, the median monthly rent in England between April 2021 and March 2022 was £795 – higher than at any other point in history.

Homelessness is rising and the charity Citizen’s Advice have warned that they are now back to pre-pandemic levels of request for help with homelessness issues.

And, unlike during the Coronavirus lockdowns when those with mortgages were offered payment holidays, people who own their homes aren’t being insulated from rising housing costs.

Rising interest rates

The Bank of England delayed their decision on whether to rase the base rate again following the news of the Queen’s death, but they are set to announce their next move on Thursday.

There have been warnings that a 0.75 per cent rise in interest rates could be coming which would mean that anyone on a tracker mortgage and anyone who is due to see their fixed rate come to an end shortly, could experience an increase to their monthly repayments to the tune of hundreds of pounds a year.

In August, the Bank of England raised rates by 0.5 per cent to 1.75 per cent. If they do opt for a 0.75 per cent hike this week, that will take the base rate to 2.5 per cent.

According to research from bespoke lender Butterfield Mortgages a third (33 per cent) of mortgage borrowers say rising interest rates mean they can no longer afford their repayments. That was according to a survey of 2,000 UK adults. The figure rose to almost half (48 per cent) among younger mortgage customers aged 18-34.

The average two-year fixed mortgage rate went above 4 per cent last month. That was the first time rates had gone above 4 per cent since early 2013.

In terms of numbers, it’s thought that a significant amount of people who bought during the pandemic at the top of the market will be impacted as they come to remortgage.

Rishi Sunak’s post-lockdown stamp duty holiday which ran from July 2020 to September 2021 seemed like a gift at the time (even if it did fuel house price rises which, ultimately, cancelled out any tax savings). However, it could start to look very expensive for those who took advantage of it.

According to figures from UK Finance around 42% of borrowers during that time, which includes people who were remortgaging, fixed for only two years (24 months) meaning that they are now coming to the end of their deals as interest rates hit their highest level in almost a decade.

This spells disaster

If homeowners can’t pay higher interest rates and they default or decide to sell en masse, this could be one factor which causes house prices to fall.

On the face of it, this spells disaster. There’s another way of looking at rising rates, though. Until very recently, high interest rates and fluctuating house price inflation were accepted characteristics of Britain’s economy. So, you might reasonably argue that we are merely moving out of an era of cheap credit and artificially low interest rates into something that looks more like the pre-financial crisis world.

Nonetheless, all told, housing costs are turning the screws for everyone and will likely continue to do so in months to come.

It’s worth remembering that rising inflation and central banks moving to raise interest rates to control it is not unique to this country, it is a global phenomenon. British homeowners who feel the pinch won’t care much about that. Liz Truss can’t control everything, and she certainly has no control over interest rates, but she will take the blame if her support packages are deemed to fall short.

Key Housing

Poundbury is currently home to more than 4,000 people with another 2,000 working in the shops, offices, factories and restaurants in the area. (Photo: Finnbarr Webster/Getty Images)

Speaking of Britain’s new King. Let’s take a moment to consider Charles III’s passion for housing when he was Prince of Wales.

On the outskirts of Dorchester in Dorset lies Poundbury. It is a town built “by Prince Charles” on 400 acres of Duchy of Cornwall land. The first phase of construction took place in the early 1990s and work for the last phase, which will deliver 250 homes and is due for completion in 2026, has recently begun.

The housing at Poundbury is a mixture of tenures. There are homes which are privately owned and there is also affordable housing: 35% of homes being built are affordable housing for rent, shared ownership or discounted to open market sale, according to the development’s website.

Poundbury is currently home to more than 4,000 people with another 2,000 working in the shops, offices, factories and restaurants in the area. The development’s official website says that the eventual population of community when all work is completed will be approximately 5, 800 people.

The development has been criticised as twee by some architects owing to its low-rise and picture-perfect chocolate box nature, the homes here have period features such as wrought iron fences and porticos. Labour’s communities secretary Hazel Blears also criticised the development back in 2008.

King Charles never faltered in his aim, though.

“When I set out on this venture, I was determined that Poundbury would break the mould of conventional housing development in this country,” he said, quoted on the Duchy of Cornwall’s website.

Poundbury may not be to everyone’s taste but the commitment to integrating affordable homes alongside those which are privately owned is certainly to be commended at a time when England and Wales face spiraling private rents and a serious social housing shortage. It harks back to Aneurin Bevan’s mid-century post-war vision of “the living tapestry of a mixed community” where people from all walks of life live side by side.

If only the government would invest in building social housing at scale across the country so that we might finally achieve that aim.

Prince William will now become the owner of Poundbury.

Need to know this week

If you’re renting today it’s likely that your home is high on cost, but low on space. (Photo: Getty)

Speaking of the lack of social housing and the mess that is private renting…a new report from the Resolution Foundation has found that England’s privately rented homes are getting more expensive while the space that a renter’s money can buy is not increasing.

Private renters have lost floor space equivalent to the size of Nottingham over the past 20 years, according to the Resolution Foundation’s latest Housing Outlook.

How? Private renters’ average floor space per person in England has fallen by 16 per cent over the past 20 years – floorspace collectively equivalent to the size of the east Midlands city. This is in spite of the fact that rents as a share of income have remained stubbornly high.

If you’re renting today it’s likely that your home is high on cost, but low on space.

Overcrowding has also risen: the proportion of overcrowded households in the private rental sector has more than doubled since 1996-97 – from 3.1 per cent to 6.7 per cent by 2019-20.

As ever, low-income private renters and younger renters are worst affected. The Resolution Foundation said that this demographic have experienced the greatest decrease in space, losing three times more than high-income renters (21 per cent compared to 7 per cent), while 25-34-year-olds have the smallest average space per person at just 30m².

Over to you

The housing crisis is far-reaching and there is almost nobody in this country who isn’t affected in some way. I’d love to hear from you about your housing situation. Please tell me if there’s something that you think we should be covering. Have you been evicted by a private landlord recently? Are you currently living in temporary accommodation? Are you in debt because of the building safety crisis? We want to know. 

Why la Cité Radieuse in Marseille might be the housing of the future 

la Cité Radieuse is home to 337 apartments, a hotel, a nursery school, several shops and art galleries. (Photo: Vicky Spratt) 

And now, for something a little different in this week’s over to you section.

I have just returned from Marseille where I visited and spent a night at la Cité Radieuse which has left me thinking about the lack of ambition when it comes to designing urban social housing today.

From a distance the brutalist building looks like a concrete ocean liner, on closer inspection it is a 9-storey hive of activity which is home to 337 apartments, a hotel, a nursery school, several shops and art galleries.

Designed in 1952 by French-Swiss modernist architect Le Corbusier, la Cité Radieuse is one of his unité d’habitations – a housing block unit which is meant to showcase how high-rise living could provide community for lower income people and communities displaced after the Second World War.

Le Corbusier played with light, shape and colour in Marseille. Walking around the building is, unlike the experience of walking through many of the social housing blocks I have visited in England, not unlike that of walking down the street: light peaks out at you unexpectedly, let in through huge windows and corridors are connected by large stairways.

At every turn, there is a window which serves as a portal for panoramic views which provide live snapshots of the limestone mountains which border Marseille. When you are inside la Cité Radieuse, you always feel close to the outdoors.

Light is not the only thing to commend Le Corbusier’s design here. On the 9th floor, the roof terrace is home to a running track, a paddling pool and a nursery school – the sort of communal spaces that people desperately need in Britain’s cities but so often lack.

On the 9th floor, the roof terrace is home to a running track, a paddling pool and a nursery school. (Photo: Vicky Spratt) 

As Leslie Kern, author of Feminist City and associate professor of geography and environment and director of women’s and gender studies at Mount Allison University, notes in her book women and parents with children are horrifically penalised by the fact that these spaces are not generally accounted for in urban planning.

Le Corbusier had four objectives for his vision:

· To provide efficient communication networks.

· To ensure the enlarged, vast areas of greenery throughout the city.

· To increase access to sun.

· To reduce urban traffic.

After 24 hours at his attempt to achieve this in Marseille, I can see how it would work. Everything a person needs is inside la Cité Radieuse so there is less need to travel and, everywhere you go, whether that’s to the roof where young children played in the paddling pool or the entrance hall, there are groups of residents standing together talking.

However, as one man who lives and works in the building told me, “the problem is that people want to leave” which means that re-entry into the outside world can be a little bit like “having sea legs”.

Le Corbusier’s attempt to design functional and compassionate urban high-rise homes is not perfect. Design that keeps people in one place is not realistic. But, when I think about the dark, dank hallways, small windows and lack of amenities in so many newly built high-rise buildings, la Cité Radieuse seems like something sent from the future and not a relic of the past.

This is Home Front with Vicky Spratt, a subscriber-only newsletter from i. If you’d like to get this direct to your inbox, every single week, you can sign up here.