Mortgage rates doubling. Home owners in despair. Thousands of homes being repossessed.
Sounds familiar? This was Britain in 1990. I was running Nationwide Building Society’s press office and had the job of announcing that February that mortgage rates were going up to 15.4 percent. Just two years earlier the home loan rate was just over 8 percent.
The 1980s were a golden time for home ownership in Britain. Prime minister Margaret Thatcher championed a home-owning democracy, and the proportion of people owning their own home rose from 56 percent in 1980 to 67 percent in 1990. (Source: Statista.) But the housing boom crashed after Thatcher and her chancellor Nigel Lawson allowed the economy to overheat, and interest rates almost doubled in just over 18 months, culminating in that eye-watering 15.4 percent mortgage rate.
As spokesman for Britain’s third largest mortgage lender, I was busy explaining the impact on borrowers (and savers). Fixed rate mortgages were in their infancy in the UK, with the first launched in 1989, and I can’t remember Nationwide offering one back then. Many borrowers were on annual review mortgage schemes, which fixed the monthly payment but not the interest rate for 12 months. If interest rates soared, the borrower had to pay back the extra money owed later.
Suddenly, Keir Starmer has become Britain’s prime minister in waiting. The catastrophic opening weeks of Liz Truss’s premiership has utterly transformed the political weather. Labour’s slow recovery after the disastrous Corbyn years has been turbocharged by the new Tory leader and her chancellor, Kwasi Kwarteng. Labour now enjoys a poll lead of up to 33 percent, and is seen by many as the inevitable victor in the next general election, which must be held by January 2025.
Truss and Kwarteng destroyed the Conservatives’ reputation as careful custodians of the British economy with their budget on 23 September. The markets hated the way the former party of sound money planned to borrow billions to fund tax cuts, on top of existing promises to reduce the increase in energy bills and the debt built up during the pandemic. The pound approached parity with the US dollar, and pension funds faced insolvency. Mortgage lenders withdrew home loans from the market as interest rates looked set to soar to protect the value of the pound. Millions of people are worried about the consequences, and blame the already unpopular Tories.
Labour has often been portrayed as the party that presides over financial crises when in government. The party devalued the pound in 1949 and 1967, and famously had to ask the International Monetary Fund for an emergency loan in 1976. (Ironically, it turned out that Britain’s finances weren’t as bad as the Treasury warned, and the loan wasn’t needed after all.) Now, it’s a Tory government that is damned by association with the IMF, as the international lender of last resort condemned the party’s budget.