Natalie Elphicke Conservative MP for Dover. She was formerly chief executive of the Housing & Finance Institute, co-chair of a Government housing review and founding chair of the New Homes Quality Board.
The rising cost-of-living means that many households are struggling and making hard financial choices.
Times look set to become even harder over the next two years. Inflation is currently at ten per cent and forecast to continuing rising, perhaps to as high as 18 per cent. The Bank of England currently expects inflation to fall back to more usual levels in two years’ time.
In Tuesday’s article I proposed a newly shaped Department for Housing and Households which would have oversight of household costs in order to robustly challenge the total costs of household bills.
This article looks at housing costs. Housing costs are a substantial part of household bills, and these costs are highest for renters.
Help for renters – by freezing rents
There are now more people renting (nine million households) than those who own a house with a mortgage (6.8 million households). That means different policy interventions will be needed than from previous times.
The latest ONS data show that private rents in England are now the highest on record. Average rents will set you back nearly £10,000 a year – or £17,400 a year in London. Rents are still rising. Rents on new lettings are up an alarming ten per cent from last year, and double that in inner London. Like food or energy prices going up, if rental costs keep rising then they will simply add to pressures on households as well as to the inflationary pressures.
It has been suggested that faster rising rents in London have fuelled 1.5 per cent higher inflation in the Capital. In addition, ONS analysis reports that people who rent privately spend about four to five times as much as homeowners on housing, fuel and power costs. The number of households at risk of homelessness in the first quarter of this year was twice that of last year. So there is a strong case for Government intervention on rents for a limited period during these extraordinary times.
This could be done by freezing all rents at their current rates for up to two years. In addition, no property could be re-let at a higher price during that period. This would ensure that the rent freeze cannot be circumvented by re-letting. Such an intervention would have a real impact on families and inflation – equating to a saving over the next two years of around £2,000 for the average renter, and up to £4,000 in London.
While landlords would, no doubt, protest, this would not be so problematic for landlords as might first appear. It is not landlords who are facing paying for the extraordinary energy rises in the homes they let out, but their tenants. Buy-to-let finance costs are still low, with two-year fixed rates available at less than 2.5 per cent.
So there is, and has been, no justification for the excessive rent hikes in recent times. Rents don’t reflect the costs of being a landlord. Rent levels are simply opportunistic and a result of lack of effective policy oversight in that market for far too many years.
Indeed, controlling inflation will help keep interest rates lower for everyone as well as stabilise the value of housing. Extended inflationary spikes eat away at the value of all capital assets, including housing. High levels of repossessions and evictions put negative pressure on house prices. Early action to control rent rises is in the interests of landlords as well as tenants.
The measures to freeze rents will help the public finances too. Of the nine million renters, 5.8 million tenanted households receive housing welfare support. Spending on housing welfare in 2021/22 is forecast to be over £30 billion. These measures could help to save billions on the benefits bill.
Help for pensioners
The distribution of housing wealth is markedly different now from the time of the housing crash of the late 1980s/early 1990s or the global financial crisis of 2007/8. Most homes are now owned mortgage-free and by older people. Recent figures show that almost three-quarters of people aged 65 years and over owned their homes without a mortgage.
Rising prices hit hard people living on a fixed income – particularly older people. Many will look at options like equity release to make ends meet. It will be important to protect older homeowners against unscrupulous second-loan sharks or dodgy home finance release schemes.
The Government should act decisively in working with regulators and finance providers to ensure that there is a range of suitable products for pensioners to weather the immediate challenge, including possible Help To Buy-style guarantees and other interventions to ensure continued availability of finance and fairer pricing, should that be needed.
Protection for leaseholders against forfeiture should also be considered, particularly where heating costs are included in the service charge or ground rent arrangements. It is vital to protect all types of households from surging energy prices in the coming winter months.
Help for homeowners
Many of the regulatory and repossessions protections introduced after the global financial crisis are still in place. With interest rates expected to rise further, there are additional measures that were deployed in the early 2010s that can be quickly deployed again if needed.
In addition, Government could even introduce direct support through a targeted form of MIRAS – a scheme where tax relief is provided against mortgage interest payments. This would have the effect of reducing tax payments and increasing money in the pockets of mortgaged households. Rather than a general relief, it could be targeted at lower and middle income mortgaged households.
Taking decisive action on rent, mortgage support, pensioner protection and overall household costs control measures is vital over the next two years. Such measures can be anti-inflationary and help alleviate the current economic situation. They should also ensure better value for the taxpayer and greater certainty for householders in managing household bills in these difficult times.