The government must do what it takes to help homeowners facing crippling mortgages

Mortgage rates are rising to levels last seen during the disastrous Truss-Kwarteng mini-Budget last year – and look set to go higher still in the short term.

The pain is starting to be felt by those coming off older ultra-low fixed-rate arrangements and onto the current unforeseen rates of 6 per cent or more. Middle-class families with relatively modest incomes are having to find perhaps £700 a month extra as their old home loans expire and they need to refinance.

Even for the most thrifty, that is quite a challenge – and in some cases an unaffordable one.

Borrowers now on variable rates linked to the Bank Rate are now getting letters from the bank or building society every eight weeks telling them their mortgage bill is going up again; 13 such missives since the autumn of 2021. Households who have so far weathered the cost of living crisis – and found some way to heat and eat – are now worried about keeping a roof over their heads.

The problem is likely to become more acute for more than a million homeowners (and voters) over the next year or so.

The question naturally arises as to what the government can or should do to help people cope with this crisis. Economically, this sudden squeeze on household incomes threatens to shred confidence, with parallel pain and damage being felt by businesses too.

Socially, a slide towards a housing crash, negative equity and evictions is obviously undesirable. Politically, the damage to the government, especially among highly-leveraged younger voters in London and the South East, could be cataclysmic.

The trend in mortgage bills is certainly doing nothing to foster the “feelgood factor”. Policy is managed independently by the Bank of England, and rightly, but it is ministers who are getting the blame.

Not for the first time, when faced with an emergency the government presents a picture of exquisite confusion. The prime minister expresses concern, but not much more.

Michael Gove, in charge of housing, by contrast, offers much more than pious hopes. Mr Gove instead spent Sunday morning touring the television studios and raising the prospect of financial help.

Careful not to commit himself, and keen to stress it is a matter for the Treasury, Mr Gove nonetheless emanates upbeat vibes: “It’s vitally important that the government does everything that it can in order to help people with the cost of living… We are looking at everything that we can do in order to help homeowners through this difficult period.”

Nothing was ruled out; everything is under review. Mr Gove left it there.

But it was not left there. Hardly had the words dropped from Mr Gove’s lips than Treasury sources were slapping him down. The chancellor, Jeremy Hunt, has ruled out giving any direct fiscal support to households struggling with mortgages, according to reports, because such an intervention would increase public borrowing and blunting the attack on inflation.

He has a point, too; the whole rationale of hiking rates in this way is to take spending power out of the economy, and squeeze inflation out of the system.

Nonetheless, Mr Gove is right. In macroeconomic terms the present simultaneous fiscal and monetary squeeze – higher taxes and higher mortgages and rents – is having some success in slowing price increases.

If there are no further unexpected inflationary events such as the invasion of Ukraine, “imported” inflation should also subside. But domestically generated inflation – mainly via wage settlements – has been more stubborn than anticipated, and hence the Bank’s relentless campaign of pounding households and businesses with small rate rises every couple of months.

So the Bank should stay on course in pursuing the official medium-term target of 2 per cent inflation. More apposite, the Bank’s Monetary Policy Committee should also ignore Mr Sunak’s politically motivated unofficial target of a rate of 5 to 6 per cent by the end of this year, which was an unusually clumsy move in this area by the prime minister.

It is difficult, and expensive, for ministers to design any kind of scheme for mortgage holders that mirrors the energy bill support package, let alone the various Covid schemes. Direct assistance to households is impractical. Many would see such a policy as inherently unfair.

So much for the “retail” end; but the Treasury, Mr Gove’s department and the Bank of England could create a limited special purpose financial vehicle at the “wholesale” side, to help the banks and building societies ameliorate matters for poorer families in the most need.

Financial institutions already make strenuous efforts to prevent making their customers homeless by providing mortgage payment holidays. A state guarantee or underwriting to protect banks and prevent a crisis in housing turning into an economic slump might well save the Exchequer money in the longer run.

It is a little like the mortgage guarantee system in the United States, which itself grew out of the terrible experience of the great depression. The federal agencies did run into serious difficulties during the global financial crisis of 2008, but they also proved their worth for decades before, and since.

It’s something Mr Sunak, Mr Gove and Mr Hunt might well find works to the nation’s advantage, as well as doing their dismal electoral prospects some good.