It`s raining stones again…

Nora Connolly

Image © Tmaurizia

When will UK interest rates rise?  Pundits recently suggesting an increase likely prior to the next general election, a scenario which would allow the Coalition to spin the policy as a by-product of economic recovery. Given that any decision made in this regard by the Bank of England must be linked to an economic upturn. This introduces a potentially nasty paradox, as economic recovery, either real or illusory (the latter more likely) could have dire implications for many UK households currently struggling to make ends meet at this time. All things considered, it might be prudent to avoid household debt at the moment, a view which is shared by those now running the British economy, not the Treasury but the Bank of England, after yesterday’s very British coup.  The recent announcement by the Bank of England to withdraw the funding for lending scheme had an immediate impact as “shares in construction companies plunged”.  But more significantly the financial stability report leaves Treasury policy undermined, while at the same time cleverly placing future responsibility for any UK housing bubble at the door of number 11 Downing Street.

Last week speculation about interest rates was rife, a debate which also shed light on the significant increase in mortgage take up in the UK, which is at a five year high.  A variety of Building Societies and Banks are offering 95 per cent mortgage deals to potential customers.  A few of these are cited in a market place doing its best to project optimism. They include RBS, NatWest, HSBC, Santander and the Yorkshire Building Society. RBS has now become RBYES and NatWest transformed into NatYes.  Those wishing to take up any of these deals are advised that a 95 per cent mortgage borrower could face higher interest rates, since they will be seen as a higher risk of defaulting.  They are also issued with the customary caveat, that they risk repossession if they don’t keep up with their mortgage payments.   A genuine warning made while necessity compels many in the UK to borrow a 95 per cent mortgage otherwise they will not be adequately housed.  This is without doubt a risky venture, disguised by the bogus optimism that was until recently emanating from the high street.  The UK figures are indeed stark, “40% of outstanding mortgage debt is held by people who have a debt equal to or greater than four times their income. Clearly this is a high number and could cause concern under higher interest rates”.

The announcement that the Bank of England is pulling the plug on the funding for lending scheme at the end of January; may well put an end to this manufactured optimism. This does appear to be a dramatic and somewhat drastic announcement, made no doubt for a variety of reasons.  Clearly, it was motivated by concerns of an emerging housing bubble, less worried by double dip and more concerned with double bubble. Of course the Help to Buy scheme is immune to these changes and still in place – but “sceptics may wonder for how long”?  The recent announcement suggests that lumbering borrowers with a 95 per cent mortgage may not be a great idea, especially when interest rates are going to go up.  Not that the economic situation for 9 million people in the UK is that great at the moment.

It`s currently estimated that 20% of the UK adult population is in serious trouble with debt.  Figures emanating from a recent survey by the Money Advice Service an organisation set up by the Government and Chris May highlighted the survey’s findings this week in conversation with Winifred Robinson. The research suggests that 64% of the 8.8 million struggling to deal with debt are women and that 50% of those experiencing debt problems are in work. And 50% are home owners, which makes the likely increase in interest rates a real concern. Among other things people are struggling to meet mortgage repayments and to cover their rent. Five geographical locations are identified in the worst hit area “4 out 10 people were seriously indebted”. At the top of the list are those on benefits, followed by a group identified as the “Worried Working Families”.

In the early 1990s a brilliant film directed by Ken Loach `Raining Stones` attempted among other things to outline the problems associated with British working class life and the reality for those who found themselves on the slippery slope of debt.  This film is worth watching again because it seems twenty years later it’s still raining stones everyday for working people, not that one expects anyone in the Treasury or the Bank of England to be too concerned about that.

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