Politicians and business leaders must wake up to the end of cheap money, as ‘hamster wheel households’ start to feel the pain.
The following opinion piece was first published via CapX. Data tables from our research are available for download at the bottom of this page.
There are two big public policy challenges facing home ownership in the UK. The first, getting onto the housing ladder, if you don’t have a helping hand from The Bank of Mum and Dad. The second, those clinging onto the ladder who fear having to hand back the keys to their homes. It is this latter group who should be occupying the minds of business leaders and politicians seeking office in the coming years. And here’s why.
Running the risk of defaulting on mortgage repayments is a very real fear for as many as 3 million households, as our new research lays bare. If you were lucky enough to be coming of age after periods of high inflation and high interest rates that dogged Britain in the 80s and 90s, the politics of mortgaged households will have passed you by. Because what followed with incredibly low interest rates was an era of cheap money. With each interest rate rise the era of cheap money comes closer to the end, with fixed term tariffs expiring. And that is a major issue for those who borrowed at low rates, as incomes decline, cost of living bites and mortgage renewals come round.
There are 8 million mortgaged households in the UK. From our analysis, we see three categories of mortgage holder emerge. At one end, the ‘Safe’ segment, comprising 66% or 4.9m people. They are typically mortgage holders aged 45 plus, who have seen increases in salary since taking out their mortgage; and older households who have significantly paid their mortgage off.
At the other end of the spectrum, the ‘Extreme Danger’ group, comprising 22% or 1.7m households. A younger cohort who are disproportionately less likely to vote, they are already not coping with the current level of interest rate increases since last year. Their debt profile is the most severe with regularly paying minimum payment on credit cards. They have little in the way of savings and so literally have no significant financial horizon. One financial event would drive them into mortgage default.
Finally, the ‘At Risk’ group who make up the remaining 16% or 1.3m. At first glance, these households look to be financially comfortable with decent jobs and combined income of up to £70,000. However, they feel real financial exposure and fragility. And as our focus group research finds, they feel trapped.
To put in in their own words, as one participant from a focus group in the North West of England put it on trying to make ends meet: It’s really stressful. You want to be focusing on other things, but you just have to focus on this all the time.’
Meet the nation’s ‘Hamster Wheel Households’. The analogy speaks for itself. These households live under the burden of rate rises, spiralling costs and diminished incomes – their lives are a relentless cycle.
And most alarming, within the ‘At Risk’ group, there are 230,000 households who will this year come off fixed-rate tariffs who face the risk of defaulting if forced onto standard variable rates.
No political party has won a general election in the last 50 years without winning mortgage holders. At the 2019 general election, the Conservatives won mortgaged holders 44% to Labour’s 33%. Stonehaven’s latest polling finds that mortgaged holders are moving to Labour who have the backing of 44%, a current 15-point lead over the Conservatives.
Mortgage holders are at risk. And they could well be the group that decides the next General Election.
The Conservatives find themselves uniquely vulnerable then to the stresses felt by mortgage holders as we enter the last year before a General Election. The legacy of cheap money is bigger, though, than any General Election and will be a challenge to Government and Banks to find means to help mortgage holders cope whatever happens next year in the election.