‘It’s time to press the reset button’

MY first job after leaving school was for a building society. After several months on the counter, I was moved to work in the mortgage department supporting borrowers who were unable to pay their bills and were facing repossession.

Throughout the period leading up to the recession of 1990, inflation had risen steadily from 3% to 5% and interest rates rocketed to about 10%. The country went into recession and many people were struggling.

In the last few months, many people who pay a mortgage have seen several increases in their outgoings, to add to the hikes in prices for food, fuel and other outgoings. On the face of it, with interest rates now much lower than 30 years ago the situation is not as critical, but this fails to tell the whole story.

Back then, people were able to buy a home for three times their salary. They needed a deposit of just 5%, which for a first-time buyer would equate to about six months’ salary and as fixed rate mortgages did not arrive until 1989, we would all factor in what payments would be if rates increased knowing it could – and probably would – happen on a regular basis.

If you roll that forward to today in Dorset, the average salary is £34,000 but a typical two-bed house costs somewhere between £250,000 and £350,000. 96% of new borrowers over the last five years have taken a fixed rate deal.

Even with this cursory look, the numbers no longer add up.

One-third of the population owns their home outright, and one in six rent from the council or other social landlord.

Together that’s nearly half of households. They are completely unaffected by rate rises as are those on fixed rates and those renting from private landlords – though they see the problem looming over the hill as fixed rates end and tenancies are reviewed.

The idea behind using interest rates as a lever is to slow spending. It suggests we are all throwing our money around like Harry Enfield’s infamous ‘loadsamoney’ character in the 1980s.

But this simply is not the case – especially for the cohort of people most affected by this device.

Once you factor in student loans reducing net income, the massive cost of childcare and energy bills at their highest level, it is obvious that 20th century solutions simply will not work for this very modern problem.

To hear the Prime Minister suggest we should ‘hang in there’ and that he is ‘100% on it’ shows just how out of touch this Government is.

As we enter the 13th –unlucky for some – year of this Government it is out of ideas, out of touch and out of time. More radical thinking is needed, more honesty about how we got here and most importantly a change of Government.

We cannot keep limping on, one by-election at a time, dramas and scandals emerging round every corner, public sector workers striking for a fair deal.

We need to rebuild trust, we need to regain energy and we need to press the reset button and have a General Election without delay.