Trump is raising your mortgage cost. So, why can’t Britain offer fixed-rate mortgages for life?

SUMMARY

Richard Murphy, political economist, examines the recent surge in UK mortgage rates, attributing much of the increase to global instability and specifically actions by Donald Trump. He contrasts the UK’s system with the US model of government-backed, long-term fixed-rate mortgages, arguing that adopting a similar approach could provide greater financial security for British households.

MAIN POINTS

• UK mortgage rates are rising sharply, with average households facing significant increases in monthly payments. [0:00]
• The increased mortgage costs are reducing household spending power, negatively impacting both families and the broader economy. [3:01]
• Unlike the UK, the US government guarantees a large portion of mortgages through Fannie Mae and Freddie Mac, enabling fixed rates for the life of the loan. [5:02]
• Government-backed mortgages in the US are fiscally neutral and provide security, whereas the UK government has largely withdrawn from direct mortgage provision. [8:00]
• Redirecting UK banks away from mortgage lending towards business investment could stimulate economic growth and make the financial system more socially useful. [11:02]
• Political resistance, particularly from the City of London, prevents the adoption of US-style fixed-rate mortgages in the UK, leaving households exposed to external risks. [14:00]

DETAILED ANALYSIS

UK mortgage holders are currently facing substantial increases in their monthly payments, with some reports indicating an average rise of £231 per month for new five-year deals compared to the previous year. This surge is attributed to global instability, notably the economic repercussions of Donald Trump's actions in the Middle East, which have heightened risk perceptions in financial markets. As a result, lenders are passing these risks directly onto households, many of whom have limited financial reserves and are already stretched by existing obligations.

The reduction in disposable income not only strains individual families but also diminishes overall consumer spending, weakening economic growth and government revenues.

In contrast, the United States employs a government-backed mortgage system where agencies like Fannie Mae and Freddie Mac guarantee around half of all mortgages, allowing for fixed interest rates over the entire loan term. This arrangement shifts the risk from households to the government, which is better equipped to absorb economic shocks. Importantly, US borrowers can refinance if rates fall, but are protected from increases, providing long-term financial certainty.

The securities created from these mortgages are attractive to institutional investors due to their government guarantees, and the system survived the 2008 financial crisis with reforms.

Historically, UK local authorities offered similar mortgage products, but this practice ended under Margaret Thatcher's government, which prioritized reducing public sector involvement in housing finance. The current reluctance to reintroduce government-backed mortgages is rooted in concerns over public balance sheet expansion, though such lending is fiscally neutral due to asset backing. Murphy argues that adopting a US-style model would protect UK households from rate shocks, boost confidence, and encourage banks to focus on productive business lending rather than mortgages.

However, entrenched interests in the City of London and a lack of political will, particularly from figures like Rachel Reeves, have prevented meaningful reform, leaving households vulnerable to external economic events.

LINKS

• Poll on whether Britain should introduce fixed-rate mortgages for life.
• Transcript and additional resources from Richard Murphy's blog.
• ChatGPT prompt and instructions for writing to your MP about mortgage issues.
• Donation page to support Richard Murphy's work.
• Richard Murphy's Bluesky social media profile.
• Richard Murphy's Funding the Future blog.
• The Wealth Series playlist.
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• Britain playlist.
• Tax playlist.
• MMT playlist.
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• Climate Change playlist.
• USA playlist.
• Labour playlist.
• The Trump Administration playlist.
• Channel introduction video.

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