How the vow to make 'generation rent into generation buy' was killed by the Tories

He called it “disgraceful” that the number of homeowners aged under 40 had plummeted in recent years, and promised to step up the number of 5% deposit mortgages available to first-time buyers, and make them more affordable with longer-term fixed-rate deals. 

Fast-forward two years, and the Bank of England interest rate sits at 2.25% - the highest level for 14 years – and there are predictions it could hit 6% next year.  

Mortgage deals are vanishing at the speed of light - with a record overnight drop of more than 900 products between Tuesday and Wednesday this week – and economists have begun predicting a 10 to 15% fall in house prices next year.  

Prime Minister Boris Johnson addressing the Welsh Conservative Party Conference, 2020 (Image: PA)

Warning over homelessness surge

Rather than a generation of renters being turned into a generation of homeowners, economic analyst Cameron Archibald believes the “insane” mini-budget announced last week will instead lead to a surge in homelessness and families cramming together in tight accommodation just so they can afford to stay alive. 

“It’s gobsmacking that somehow a developed country has managed to screw itself over in the mortgage markets like it has today,” said Archibald, who is head of research at independent economic think-tank Modern Money Scotland. 

“You will see people kicked out of their homes and left on the streets. We are talking about a situation where homelessness is going to go through the roof. 

“I’m picturing the old Victorian-esque image where you had a working family of 10 living in a single room. I would not be shocked if this happened.” 

The risk to variable mortgages

Archibald explained that because of the hike in the Bank of England’s base rate, variable mortgage rates will rocket, making the energy crisis seem “like a picnic” in comparison.  

He said: “If we assume that the Bank of England is going to continue taking up interest rates, we’re talking about it getting to around 6% eventually.  

“I reckon by November, there will be further a 2% increase, assuming this Trussonomics continues, and we’re going to see an interest rate of around 6% in early to mid-2023. It might change because Tories are known for U-turns, but at this current rate that’s what we’re going to see. 

“Now mortgage rates typically sit on or above the Bank of England base rate, so what we’re going to see in the coming months – if Trussonomics continues – is mortgages being offered at around 7%, and bear in mind that offers are being pulled by providers across the country right now. 

House prices are expected to fall (Image: File photo)

“Fixed rates are somewhat secure, but let’s look at interest rates on variable mortgages. If we’re comparing it to the most recent hike at the beginning of this month, you’re paying about £1000 more [a year]. If we’re talking about when hikes began in January, or in December, you’re paying about £3000 more overall. If we go to the figure I’ve talked about [6%] we’re talking about £7000 [extra a year]. Now compared to energy, that’s almost a picnic.  

“Families cannot afford to pay increases of £7000. It’s just not happening.  

“We’re already talking about a recession in 2023, and this mortgage crisis will increase that recession, possibly by an extra half a year.”  

The risk to renters

Not only will the staggering rise in interest rates hit homeowners, but it could see renters struggle too. 

Those in Scotland may have been saved by a rent freeze pledged by the Scottish Government until spring next year, but Archibald warned this is not necessarily a total fail-safe. 

“Renters are going to be completely screwed, because if you’re a private renter, your home will be owned by a landlord and if you’re in England that landlord is going to pass on that cost to the renter,” said Archibald. 

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“In Scotland, you’re a bit more secure because of the rent freeze. The only way that will possibly change is if it’s legally challenged and the court decides it can’t be enforced until after the challenge, or if some landlords go rogue, which does unfortunately happen.” 

And yet, as Prime Minister Liz Truss spoke to radio stations on Thursday morning, she insisted the mini budget consisted of urgent action that had to be taken to get the economy moving, despite the International Monetary Fund (IMF) stressing the UK Government would “increase inequality” and should “revaluate” its plans.  

"Everyone is saying this is a complete disaster"

Having spoken to several economists, including some from other countries, Archibald said there was barely an expert or think-tank out there that backed the Tories’ plan.  

“When it comes to macroeconomics, you are never going to get a unified voice in the debate. People will pick out think tanks and group them together and they will mismatch,” he said. 

“But this is different. Almost everyone is saying this is a complete disaster. This is such an empty budget with no plan, and it’s so bad that markets have just said we cannot trust you. 

“I spoke to two German economists, one American and one Australian in recent days. They all agreed there’s something sickening happening in the UK right now.”  

And so another snappy, seemingly inspiring catchphrase of turning “generation rent into generation buy” has turned out to be another false promise from the UK Conservative government. 

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But Archibald believes that after 12 years, this could be the straw that finally breaks the camel’s back. 

“It’s unfathomable and it’s purely insulting that it’s managed to get to this stage,” he said. 

“I’d be very surprised if the British people put their trust in these people [the Tories] ever again.”