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Soaring Mortgages Could “Define” Tory Election Defeat

Prime Minister Rishi Sunak and Chancellor Jeremy Hunt (Alamy)

6 min read

Spooked Conservative MPs fear soaring mortgage rates will "define" the rest of this parliament and represent the final nail in the coffin for their party's chances of retaining power at the next general election.

In the coming weeks Rishi Sunak is likely to be bombarded with calls to help households nationwide cope with the prospect of significantly increased mortgage repayments.

In recent days several banks, including HSBC and Natwest, have withdrawn mortgage offers amid market panic and a widespread expectation that the independent Bank of England will raise interest rates once again next week. The cost of mortgages is set to hit levels not seen in the UK seen since the financial crisis of nearly 15 years ago.

But the Prime Minister may face few options to tackle the issue beyond leaving the Bank to hike interest rates, which it says is the best way to drive down inflation, despite growing unease among Conservative MPs with this monetary strategy.

“There isn’t much that government can do bar what it is doing,” Philip Hammond, the former chancellor of the exchequor in Theresa May's government, told PoliticsHome.

The past week in Westminster has been dominated by the perennial spectre of Boris Johnson after the Privileges Committee concluded that the former prime minister misled parliament about lockdown-breaching parties. In an explosive report, the committee said it would have recommended suspending him from the Commons for 90 days, had he not already resigned as an MP.

But as the Johnson saga appears to be reaching its final act, the ominous approach of what some anxious Conservative MPs describe as a mortgage time bomb, fuelled by rising interest rates, is filling many of them with fear. 

The fallout over Johnson's reaction to the committee's report is "all bloody displacement activity,” one former secretary of state complained to PoliticsHome this week. They warned that mortgages were the "elephant in the room” for the Conservatives as Sunak scrambles to regain support for the damaged party ahead of the next general election, which is due to be called before the end of 2024. 

There is a growing feeling in Westminster that mortgages will quickly come to dominate the national debate and be a pivotal issue when the country next goes to the polls, as higher rates compound the cost-of-living pressures already being faced by households. 

“I don’t think it’s really sunk in yet," another former Cabinet minister told PoliticsHome.

"It’s not being discussed too much in the Tory group chats, but this is potentially the issue that will define the end of this government.

"People will feel the monthly squeeze. We may not see lots of repossessions, but there will be lots of people who struggle to make monthly payments. I fear it will become the last part of the government legacy.”

Keir Starmer's Labour is planning to make the mortgage crisis its primary line of attack, PoliticsHome understands. At Prime Minister's Questions on Wednesday, the Scottish National Party's leader in Westminster Stephen Flynn also chose to press the issue, articulating what many Conservative MPs privately believe: that mortgage repayments becoming more expensive makes a Tory election win pretty much impossible.

“During his ill-fated leadership bid late last summer", Flynn said to Sunak, "the Prime Minister warned of the perils of mortgage rate rises and stated: ‘It’s going to tip millions of people into misery and it’s going to mean we have absolutely no chance of winning the next election. Given that mortgage rates continue to rise, does he still agree with his own electoral analysis?”

Recent research suggests Flynn is onto something.

Mark McInnes, an insights adviser at strategy firm Stonehaven, this week told The i that no British political party has ever won a general election without the support of the country's mortgage holders. Worryingly for Sunak, new Stonehaven polling puts the Tories 15 points behind Labour among voters with mortgages. At the 2019 last general election, the Conservatives polled 11 per cent ahead of Labour among this group.

“There’s no doubt that it is very difficult for any party to win a general election if people don’t feel better off," acknowledged one senior Conservative.

"The big issue for the government is that last time [interest rates started to climb], they could blame uncertainty and the war in Ukraine, but now people are these linking higher costs to the government’s economic policy."

Interest rates are projected to hit six per cent later this year.

This means hundreds of thousands of mortgage holders nationwide will soon be forced to make bigger repayments to banks when their fixed-term contracts end while rates remain high and they are moved onto deals containing higher interest. It means further strain on renters, too, as landlords hit with steeper mortgage rates inevitably pass the added cost onto their tenants.

Tim Pitt, who was a special adviser to former chancellors Hammond and Sajid Javid before joining Flint's policy team, told PoliticsHome that ultimately Sunak doesn't have many levers to pull to stop interest rates rising. “Government can apply pressure on banks but the idea of a major state intervention in the mortgage market, whether it be stepping in to cap rates or subsidise mortgages, would be terrible economics and pretty bad politics,” Pitt said.

Pitt explained that a major intervention would make the Bank's job of bringing down inflation "much harder" and have the effect of prolonging the pain. It would also mean asking well-off people to effectively subsidise those with greater assets, he said, and added that in any case, the current Chancellor Jeremy Hunt “doesn’t have any money to spend” anyway.

Andrew Bailey, Governor of the Bank of England (Alamy).

“It’s a slow burn issue that is going to impact a lot of people over next 18 months to two years and rightly or wrongly, the Conservative party is going to get blamed for it," he said.

"It is going to be very, very difficult for the Tories to get away from."

Pitt said the best thing Sunak and Hunt can do is stick with their plan to bring down inflation using the tools they have, as that would put the Bank in a stronge position to reduce interest rates and in turn ease pressure on mortgages.

A government source confirmed that this was the plan. "The single best policy we can do to help mortgage holders is to halve inflation this year, and help the Bank of England return inflation to 2 per cent target," they told PoliticsHome. "There's no better policy intervention."

Higher interest rates also present further political difficulty for Sunak and Hunt in that it is more difficult for them to promise tax giveaways before the next general election, which they are under growing pressure from restless Conservative backbenchers to deliver.

"Inevitably, higher interest rates with high levels of government debt mean less headroom for the Chancellor to do the things I’m sure he’d like to at the Autumn Statement and Spring Budget," Hammond told PoliticsHome

"He [Hunt] has set out his fiscal rules, and I very much doubt he is going to change them ahead of the next general election."

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