Szu Ping Chan
Sun, 27 August 2023
Mortgage payment crisis
Britain’s “demonised” landlords are dealing with a triple blow of crippling taxes, rising mortgage costs and increased red tape that has made the housing crisis worse, according to the chief executive of Skipton Building Society.
In a stark warning, Stuart Haire blamed unaffordable property prices and rising rents for a disappearing middle class, with more people pushed into social housing or forced to live at home with their parents for longer.
He said a toxic mix of rising costs meant it no longer made financial sense for some landlords to keep hold of their properties, piling pressure on the pipeline of properties available to rent.
Haire said: “The demand has gone. You’ve got a slightly demonised private rental sector and landlords are getting squeezed from a tax basis and from the increased mortgage rates they are having to pay if they have debt associated with that property.”
Haire, who runs Britain’s fourth largest mutual by assets, said new standards forcing landlords to make their properties more energy efficient were also adding to mounting costs.
The Bank of England warned earlier this month that renters were facing growing financial pressures that others have warned could trigger an arrears crisis “as landlords pass on higher mortgage and regulatory costs”.
Haire said: “Renters are going to find it less affordable to go into rented accommodation because the supply of rental accommodation will reduce, pushing prices up. That means more people are going to be dependent on social housing. And we don’t have enough social housing. We’ve got a lot of people on lists. And so you’ll have an awful lot of people maybe back living with the family in difficult circumstances, you’ll have a lot more social pressure.”
He said there was “a genuine risk of social cohesion breakdown” triggered by a lack of housing affordability and increasingly divided fortunes between the “haves and have nots” in society that could give rise to “desperate acts”.
“You get less people in the middle class, it becomes either a greater plutocracy or it becomes ungovernable. I’m talking in extremes. But these are the things I think about. If we’re not a caring society and more people move into the vulnerable thresholds, more desperate acts happen.”
The former HSBC executive added: “The more people who leave the middle classes and drip into struggling to afford things, the more unstable your politics becomes.”
Haire urged the Government to think harder about the impact of higher taxes and other costs imposed on landlords and ultimately renters, warning that many landlords were now unable to sell properties because of a lack of demand and rising mortgage costs.
“There’s [fewer landlords] coming in,” he said. “It’s just all becoming a bit hard. They’re not yet selling up, because there isn’t yet the level of buying demand in the market because mortgage costs are going up.
“Certainly if you view it economically rather than politically, you’ve got an asset class that used to yield ‘x’ per cent, and that has been reduced by extra borrowing costs, by the extra taxes, and you may also have to put capital into your property to make it more energy efficient. It’s just basic economics, so I think the government has to consider that.”
Rents rose at the fastest pace on record last month, with prices paid by tenants up 5.3pc in the 12 months to July, according to the Office for National Statistics (ONS), piling pressure on a group that tends to have more precarious finances than homeowners.
Bank of England data show renters have a median household income of £24,000, compared with £52,500 for those with a mortgage. Renters also have less squirreled away, with average cash savings of £750 compared with £5,500 for mortgage owners.
“Higher debt and lower savings would make renters more likely to face hard financial choices in the future – like defaulting or cutting spending – which could trigger or worsen a wider economic downturn,” Threadneedle Street analysts warned this month.
Haire said Britons spend more time in their homes than other nations, and take pride in putting their own mark on them.
Recent research by Bupa suggested two fifths of British adults spend less than an hour a day outdoors, which Haire said adds another dynamic to home ownership in the UK.
He added: “I’ve lived in England most of my adult life and for me, when you rent a place that’s not yours, it’s probably not your furniture, it’s not your walls, you can’t put a picture up. You never get the chance to fully personalise it. So I think in Britain, as opposed to some other places – a little bit because our weather is so rubbish – we spend more time in our houses than some other places.
“I spent a lot of time in Hong Kong. And some of the houses there are really challenged size-wise and so a lot of people live a lot of their lives out of them. Brits, however, tend to live a lot of their life in their houses watching television or whatever it is. And so the need for you to be able to personalise it and make it your own is high. You can’t really do that in rental accommodation.”
Haire said these brewing social issues were one of the key drivers behind Skipton’s decision to launch the UK’s first 100pc mortgage since 2008. The zero-deposit loan is available to first-time buyers who have paid their rent in full for at least a year.
While rising interest rates have led some to warn about the dangers of so-called negative equity if house prices fall, where people end up living in a property worth less than their home loan – Haire said the mortgage has been popular with members. “Over 30,000 people” have inquired about it, he said.
“We’ve had about maybe £40m of applications already and it’s really only two months old,” he said. “That’s still small in proportion compared with our £30bn mortgage book. But it shows that there’s quite a lot of demand out there. And it’s those types of offerings that have led to us increasing our first-time buyer percentages.”
Haire added that Skipton’s mortgage holders remain resilient – for now at least. Back in June when mortgage costs spiralled due to soaring inflation, Jeremy Hunt put pressure on lenders to offer borrowers more breathing space.
Many can now opt for temporary changes to their mortgage terms that lower repayments for a short time without affecting their credit rating.
Asked how many Skipton customers have asked for help, Haire said: “Very, very few.” In July, Haire said the building society received around 250 requests, and around 50 so far in August.
“So it’s small. It’s useful for the people who have it, but most of the reasons aren’t necessarily about the fact they’ve got an interest rate going from 2pc to 6pc,” Haire said. “It’s more to do with lifestyle, people just want that little bit of extra money in their pocket. They’re not struggling to feed their kids.”
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