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Growth Plan of 23 September 2022 and Cost of Mortgages

Volume 734: debated on Tuesday 20 June 2023

3. What recent assessment he has made of the potential impact of the growth plan of 23 September 2022 on mortgage rates. (905498)

9. What recent assessment he has made of the potential impact of the growth plan of 23 September 2022 on mortgage rates. (905504)

10. If he will make an assessment of the implications for his Department’s policies of the cost of mortgage products. (905506)

We recognise that this is a concerning time for homeowners and mortgage holders, but we cannot ignore the fact, much as some may wish to, that interest rates have risen across western economies as a result of the covid pandemic and the impact of the war in Ukraine. The Bank of England sets the base rate, which can have an effect on mortgage pricing, and the Bank has been independent since the decision of the then Labour Government in 1997. We remain committed to responsible management to bring inflation under control, which is the only sustainable way to lower interest rates and lower mortgage rates.

The former Prime Minister has apologised for the mistakes in her so-called growth plan and the damage it caused. Families across the UK will soon start paying thousands more in mortgage interest payments. Given the Prime Minister’s comments yesterday, it appears that there is little or no further support coming. Will the Minister join the former Prime Minister and apologise to the nation for the impact of the Conservative party’s misguided economic experiment?

Much as the Opposition would prefer this not to be the case, it is a fact that this is impacting across western economies. Although market-to-market comparisons are not always easy, in the United States of America the average 30-year mortgage has now increased to above 6%. As I have said, this Government will do what we can sustainably to lower interest rates, and thereby ease the burden on mortgage holders.

This is the second time I am putting it to the Government that the Conservatives are no longer the party of home ownership, and I do not think it will be the last time either. I say this because the average interest rate on a new two-year fixed mortgage is now above 6%. The Chancellor has already said that they will do everything they can, but what does that actually mean, because the public would like to know?

I thank the hon. Lady for her question. Not only are we taking action and taking the tough decisions to sustainably improve the nation’s finances, but we are working with lenders—the Chancellor and I regularly meet the mortgage industry—on the support they can provide to mortgage holders if they do get into financial difficulties. There is a range of measures, which includes term extensions and switches to interest-only payment holidays. The Financial Conduct Authority guidance is very clear that any repossessions—and they are currently running at a historical low—should be an absolute last resort.

As a result of the 6% rate that we have heard about, more than 1 million households on flexible-rate mortgages have already faced increases this year, and 1.8 million more will see their fixed-rate deals come to an end and face increases in this year. It is not just homeowners. The knock-on effect has meant that in my constituency in Edinburgh, we have had the highest rental inflation anywhere in the country at 13.7% in the last financial year, because landlords are facing increases in their mortgages. The Government have said that they are willing to support people, so would they be willing to consider the Liberal Democrat idea of a mortgage protection fund to protect those on the lowest incomes, and support those who are struggling?

I thank the hon. Member for her question, but regrettably the proposal that she and her party put forward would not only delay the point at which we are able to bear down on inflation and deliver the nation’s mortgage holders the lower interest they need but, as I understand, it would do nothing for the plight of private renters.

The growth plan in September obviously had an impact on the mortgage market, but is the Economic Secretary to the Treasury aware that by November, the Governor of the Bank of England said, when he gave evidence to our Committee, that the increases in mortgages henceforth were down to the Bank of England’s own increases, because that temporary effect from the growth plan had dissipated? Increases since then have been largely due to the fact that inflation has been worse than the Bank was forecasting. Did the Economic Secretary note that this week I received a letter from the Chair of the Court of the Bank of England, saying that they are going to undertake the request that I sent for them to look at their inflation modelling and at why it has been incorrect?

Not for the first time, the Chair of the Treasury Committee is on the money in her understanding of what is driving the markets, and in her advocacy and championing of the fact that our lending banks need to do a good job not just for mortgage holders, but also for savers. I am happy to meet her to talk about how we can ensure that they do the best job they can.

In his earlier reply the Minister talked about mortgages in the United States. He will know that in the United States it is common to fix a mortgage for 15 or 30 years, which gives certainty about monthly repayments and can of course be refinanced if mortgage rates go down over the term of the mortgage. I understand that the UK Treasury looked at the UK mortgage markets and at introducing long-term fixed rates, and found that at that time there was not much potential. Will he consider looking at that again?

As ever, my hon. Friend’s question is apposite when it comes to Treasury matters. There are indeed long-term fixed-rate mortgages on the market, and I have taken advice from officials on that. The constraining factor is consumer demand, and that is not a pattern of behaviour we have seen. Clearly for some mortgage holders such mortgages do offer long-term certainty, and it is certainly my objective for us to see the broadest range of choices for householders and for their own individual patterns in the market.

Mortgage payers in Stoke-on-Trent North, Kidsgrove and Talke are rightly worried at this moment in time, with the impending re-brokering that they are facing. To support what my right hon. Friend the Member for Rossendale and Darwen (Sir Jake Berry) said earlier, is it time to return to a Conservative principle of introducing a mortgage interest relief at source-type scheme, which allows borrowers tax relief for interest payments on their mortgages?

I always listen enormously carefully to my hon. Friend’s powerful advocacy for Stoke-on-Trent, and his constituents put their trust in this Government. One thing they put their trust in, is that this Government would not come forward with the sort of unfunded spending commitments that we see on the Labour Benches. That would be disastrous for my hon. Friend’s constituents because it would see inflation remain higher for longer.

The only thing that grew as a result of what the Government did last September was people’s mortgage payments. Two-year fixed rates are now more than 6%, and payments for householders are up £2,900 over the next year. Have the Government learned the lesson from the previous Prime Minister’s decision—I stress that word; it is nothing to do with international events—to use the country as a giant economic experiment that hurt homeowners, pushed up interest rates and shook international confidence in the United Kingdom? If they have, will the Minister now apologise to the householders who are paying the price for that mistake?

As ever, I listened carefully to the right hon. Gentleman’s rhetoric. I ask him whether he has learned the lesson from what we saw with the last Labour Government, who spent their way through the nation’s finances and whose most lasting contribution to the economy was a note that we inherited from the then Chief Secretary to the Treasury saying there was no money left.

Back to 2023. This is a real crisis, affecting real people as a result of the real decisions of the Minister’s Government. Figures out today show that the average UK tenant is spending more than 28% of their income on rent, and rents have gone up by more than 10% in the past year. Rents are being forced up because the landlords who people rent from are seeing their mortgages go up, too, and sometimes even faster than mortgages in general. The Chancellor and the Prime Minister were supposed to be the team that would come in and sort everything out. Can the Minister tell us what went wrong?

What went right is the fact that we on the Government Benches not only always focus on the stability of the nation’s finances to get inflation and interest rates falling further and faster than the Opposition would, but even within that envelope, we found £3,300 on average to support households over last winter and the upcoming winter. That will have a significant impact on the difficulties that mortgage holders and renters are facing because of the higher interest rates that are a feature across the western world.