As interest and mortgage rates surge, Kate Bradley examines the impact of rate rises on homeowners and renters, and suggests a strategy for how socialists should respond.
For sale and let signs. Credit: Wikimedia
On 22 June 2023, the Bank of England raised the base rate to 5%, the most recent increase in a series that has seen rates rise rapidly from 0.1% at the end of 2021.
There is a tendency to see increasing interest rates as a technical fix enacted by experts, to which there are no viable alternatives – the invisible hand of the market, almost a part of nature. But the decision to keep putting up the base rate is not inevitable. The Bank of England has chosen to raise base rates in order to manage inflation, based on the idea that inflation is primarily caused by rising demand and wages. To stem demand and wage growth, the Bank has chosen to sting businesses, whose loan repayments will go up, leading them to lower wages or sack staff, and those with mortgages or other credit, making them spend more of their income on paying their debts.
Bank of England interest rates since 2013. Source: Bank of England.
This will ‘work’ to control inflation only insofar as inflation is caused by demand and wage growth – the latter of which rs21’s Kate Deer has challenged here. Other causes of inflation – high import costs after Brexit and attendant commodity shortages, for example, or climate-related droughts and floods, or global supply chain breakdowns, or profiteering by supermarkets – are not going to be effectively controlled by interest rates. Rather than considering less destructive ways to stem inflation (such as by regulating prices), our ruling class has made the deliberate decision to inflict further poverty and suffering on the population as a way to re-stabilise the economy. It’s class war.
Who suffers most will be determined by who already holds power. Employers will pass increased costs on to workers, lenders to debtors, retailers to consumers, landlords to tenants, all scrabbling not to be left holding the bag. Working class people will take the biggest brunt as usual, losing their jobs and homes and taking the hit on rising costs. Those who already can’t afford to eat will starve.
There isn’t an end in sight yet, either. The Bank of England has been dropping hints that it may raise the base rate even further over the next two years.
Effects on homeowners
There are generally three types of mortgage on which you make monthly payments: fixed rate mortgages (usually fixed for 3 to 5 years and then the interest rate can change); variable rate mortgages, where the interest follows the base rate from the start, usually plus a few percent depending on the mortgage you’ve taken out; and interest only, where you only pay interest and the capital remains until the end of the mortgage term, when you’re expected to pay it off in one go. The last type is rarer and favoured by bigger landlords, for example, because lending rules stipulate that you need to prove you will be able to pay a large lump sum at the end of the mortgage term.
The effects of the rising base rate will be felt unevenly by borrowers, and in a staggered way. Everyone with variable mortgages will already be seeing rising costs each month, whereas those with a period of fixed interest will be waiting nervously for the end of their fixed rate, hoping interest rates will come down before their higher payments kick in. If debtors can’t pay, they may face arrears, fees, and in some cases, repossession; or else they may need to sell up and return to renting, little better off than before they had bought a house. Those who bought a house more recently and therefore have less equity in their properties, and those who have taken out expensive sub-prime credit, are most at risk.
A caller on BBC Radio 5 Live reported in June that he started on his mortgage 13 months ago with monthly repayments at £1,700, but they have now reached £2,850 per month. He said: ‘You’re a prisoner in your own home […] You can’t remortgage. They stress-tested you for your initial figure, but if you went back to them now and said I want a mortgage paying £2,850 a month they’d look at what you earn and they’d laugh at you.’
This man’s predicament is real, and one more and more people with mortgages will find themselves facing over coming months.
On 23 June 2023, the government announced a package of measures to ease the burden on those with mortgages, though many of them were hot air (e.g. they claimed that creditors will ‘offer tailored support for anyone struggling and deploy highly trained staff to help customers’, which most banks and lenders would claim they do already). These forms of forbearance are not being made available to landlords, which, counter-intuitively perhaps, increases risks for tenants.
This crisis will break in the housing sector along both class and age lines, since younger adults are far likelier to have recent mortgages or be private renters. Some lower-income mortgage-holders will be repossessed or forced to sell up. An influx of these people moving back into private renting will enable landlords to hike their rents even further. Tenants who could have been first-home buyers a few years ago will remain stuck in private rented accommodation, again swelling the pool of ‘competing’ renters. Landlords and estate agents will have their pick, even more than they do already, demanding even more rent upfront, expecting even well-earning people to sign guarantor agreements in case they lose their income, conducting exacting credit checks, and generally taking as little risk on their tenant-investments as possible. Low-income tenants, such as those on benefits, will be forced out of their homes by arrears, and Councils will buckle under the weight of demand for homeless services after a decade of austerity and the managed decline of the social housing sector.
Knock-on effects on private renters
In my tenants’ union in Manchester, we are seeing rent rises every day, and usually the rises are shockingly high – gone are the days of rent being put up by £15 or £20 a month; it’s now commonly between £100 and £400 a month more being demanded. The most recent I saw was a rise of nearly 150%.
Owning residential property has been presented as both respectable and a fairly low-risk investment for individuals since the 1980s, leading to a boom in petit-bourgeois landlordism. This boom relied on cheap credit and the deregulation of the ‘buy-to-let’ mortgage, enabling people with a bit of starter capital to take out mortgages on properties and gradually grow a ‘portfolio’ of homes. These can be managed by estate agents. It’s in estate agents’ interests to compete with one another by advertising the best yields to landlords, so even where individual landlords aren’t that bothered about sweating their asset, agents usually are (especially where their fee is calculated as a percentage of the rent).
Renters usually simply don’t have the money to pay large rent rises – but there’s enough demand, especially in built-up urban areas, for landlords to evict and replace tenants if they can’t pay. Councils and the welfare state are plugging some gaps by offering Discretionary Housing Payments and rent top-ups, but this has the perverse effect of artificially inflating rental markets further. The most surefire way to stem inflation in housing costs would be rent controls and socialisation – but this always gets dismissed out of hand as too risky or high-handed a strategy (whereas picking a tactic like raising base rates, which generates mass redundancies, evictions and poverty, is totally fine).
Landlords and their agents are eager to pass on the cost of any mortgages that are now rising to their tenants, who have little choice but to accept or face eviction. Even where legal advice or a tenants union might be able to help the tenant challenge a rent increase, there is very little to stop a landlord issuing an eviction notice as soon as a tenant tries to argue.
Thanks to Margaret Thatcher’s 1988 Housing Act (the same Act that brought in no-fault ‘Section 21’ evictions), any sense that rent needs to be fair has been effectively abolished from the law. The only legal recourse for private tenants served with a rent rise Notice is to ask the First-Tier Tribunal to assess whether the rent being proposed by their landlord is the ‘market rent’ for the property – meaning that in times of spiralling rent, the Tribunal has very little discretion to reduce rent. They can consider factors about the property – such as disrepair or the area it’s in – but they aren’t supposed to think about anything to do with the tenant. People’s income, health and other personal circumstances are not taken into account. You can be terminally ill, benefit-capped, a single mother of six kids, chronically disabled; none of that matters in Thatcher’s rent rise legislation. Therefore, in a time of inflation, landlords have free reign, not only to reset market rents by raising them, but to use them to force people out of their homes (all while increasing the amount renters consider it ‘normal’ to spend on shelter).
Not all landlords have mortgages. In fact, according to the 2021 English Private Landlord survey, 57% of landlords reported having a buy-to-let mortgage, while 38% of landlords had no debt at all on their properties. Just under half of landlords, therefore, will not be experiencing a serious reduction in their profits as a result of the base rate rising. Many are raising their tenants’ rent anyway, cashing in on rising market rents to extract more profit from tenants.
While landlords wax lyrical about how hard it is to be them, the average landlord still earns on average £15,000 a year before tax and other deductions.
The base rate rises are likely to cause some smaller landlords to sell up and leave the sector. At the moment, their only choices are to sell to big corporate landlords or homeowners. As a result, it’s a perfect time for bold policies, rather than the milquetoast pronouncements being made by Labour MPs. Private landlords who couldn’t pay their mortgage could be bought out and their properties converted into council homes, for example, in a welcome reversal of the privatisation of housing stock that has contributed to today’s inhospitable rental sector.
What does this mean for our strategy?
When socialists are thinking about how we need to respond, I think we need to try and avoid the tendency to compare the lot of mortgage-holding homeowners and tenants to work out who is ‘more’ disadvantaged. What this crisis should teach us is that a large cross-section of the population experiences housing insecurity, and owning a home via a mortgage does not guarantee safety in the way we’ve often been told it will. Even the phrase ‘homeowner’ is a bit of a misnomer: for those with mortgages taken out recently with terms of 30 or 40 years, where banks own the majority of their house, homeownership is not wildly different to secure forms of tenancy. Not being able to pay can still result in losing your home. Mass homeownership secured by deregulated lending and cheap credit was always a dangerous game – and one in which borrowers carry the most risk during economic crises. Debt, as Lucí Cavallero and Verónica Gago put it, ‘is what does not allow us to say no when we want to say no’. Debt individualises risk and crisis, isolates us from one another, and compels us to continue struggling alone, shameful in our sense of personal failure for struggling to meet our household’s needs. Socialists would do well to challenge this individualisation and shaming wherever we see it, and recognise rising interest rates as a violence enacted on the majority of the population. We need to fight back together and find solidarity across lines that have previously been staged as battle lines – between homeowners and renters, for example, benefit claimants and workers, homeless people and those still holding onto our shelter. Join debt resistance campaigns, community unions and tenants’ unions. Defend the council housing that still exists, and fight for a truly socialised housing system. Build the ongoing strike wave for better pay. Resist capital wherever it manifests.
It’s time to denaturalise the ruling class’ economic strategies, and instead propose and fight for our own.