The NatWest chair Howard Davies is no stranger to putting his foot in it: last year he “retained full confidence” in the bank’s CEO, Alison Rose, the day before she was forced to resign; and in 2011 he was forced to resign himself as director of the London School of Economics after the university accepted a pledge of £1.5m from the Al-Gaddafi family. But never has Davies been so prominent as in the wake of his performance on this morning’s Today programme (5 January), when – prompting a furious nation to throw its toast at an already marmalade-spattered radio – he told Amol Rajan that “I don’t think it’s that difficult at the moment” to buy a house.
Let’s infuriate ourselves further by considering that Davies is, to a very limited extent, right. The key phrase is “at the moment”, because houses are currently becoming slightly more affordable. The Land Registry’s house price index records a 17 per cent fall in real (inflation-adjusted) house prices from their peak in 2021. And since last summer, real wages have been growing, which makes everything more affordable. Compared to the madness of recent years, the trend in house prices at the moment is positive (as in, becoming more affordable).
However, Davies – who is, as many quickly pointed out, paid £763,000 a year – seems to have forgotten the main barrier to saving for a house, namely the obligation to help pay off your landlord’s buy-to-let mortgage. People now aged 30 are four times as likely to live in private rented accommodation than they did when Davies (72) was a thrusting young management consultant. The latest Office for National Statistics figures show private rents rising at the fastest rate on record. The average UK rent according to the HomeLet rental index is £1,279 per month, having increased by more than 20 per cent in two years. The trend in first-time buyers being able to save for a deposit is not good.
There are many people to blame for this. There’s Margaret Thatcher, for privatising the country’s social housing (much of which was then bought up by landlords) while preventing councils using the money to build new homes. There’s George Osborne, whose Help to Buy policy became a £29bn subsidy to housebuilders, as it inflated the cost of the houses they built.
But here, Davies was right about something else: he told Rajan that the real cause of the current crisis in housing affordability was the 2008 crash. In order to stabilise the financial system, the Bank of England first lowered borrowing costs using near-zero interest rates, and then, in 2009, it began further reducing the price of debt through quantitative easing (QE). The result was cut-price mortgages (fixed-rate deals reached as low as 0.79 per cent) and rampant house-price inflation. Between early 2009 and the summer of 2022, nominal house prices almost doubled.
The people to blame, then, are the people who threatened the financial system in 2008. In the UK, the most dangerous deal of the pre-crash era occurred when a hedge fund, TCI (among its partners, a young Rishi Sunak) pushed for the break-up of the Dutch bank ABN Amro, which was then bought by a consortium led by the Royal Bank of Scotland Group (RBS Group) for $93.8bn, which was far too much. When the losses began to materialise a year later, the government was forced to rescue RBS Group at a cost to the taxpayer of £33bn (at current estimate).
RBS Group, as you probably know, is now Natwest Group, and has been chaired since 2015 by Howard Davies. Since then, NatWest has been one of the biggest beneficiaries of the other big barrier to buying a home – higher interest rates. Like most banks, NatWest has raised mortgage rates in haste and savings rates in its own sweet time; as a result, it made an extra £2.5bn from squeezed borrowers in the third quarter of 2023 compared with the same three months in 2021. All of which makes Davies’ comments on housing affordability, much like Davies himself, a bit rich.
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