Mark Langabeer (Hastings and Rye Labour member) reviews a recent ITV documentary.
ITV’s Tonight programme recently examined the latest crisis in interest rises (click here). Following on the heels of a steep rise in energy and food costs, is the escalating cost for home owners and renters.
Contributors stated that the days of cheap credit are over. The Bank of England (BoE) have decided to increase interest rates to 3%. This is what they charge commercial banks for borrowing from the Bank of England. The banks and building societies pass this extra cost onto mortgage holders and businesses.
From a historical standpoint, interest rates appear to be low. There were periods in the 70’s,80’s and early 90’s where interest rates were over 10%. The difference between then and now is the size of the debt/mortgage. In the past, income was a greater proportion of the cost of buying a house.
The BoE state that it’s necessary to curb inflation. They predict the longest recession since the crash in the early 1930s. They also predict that unemployment will increase by 800,000. In their view, a return to mass unemployment is a price worth paying. Of course, it’s not they who will pay the price, it’s workers and small businesses that will suffer.
The bankers argue that interest rates must rise. Not to act now means more pain in the future. The Tonight programme accepts this narrative because most economists support this view. The B of E state that the economy is already tanking. In the past, a recession would result in lower interest rates. In my opinion, it’s a system based on private profit that causing the current crisis.
Repossession
What the Tonight programme does reveal, is the scale of the crisis. They interview a woman who lost her husband and half of the household income. Last year, her monthly mortgage repayments were £450 a month. This has increased to £800. Any further increases in interest rates would result in defaulting and she feared it would ultimately lead to repossession. She blamed the current Government and felt that they should experience her situation so that they know what it feels like.
One woman is on a fixed mortgage rate. The interest rate is 2%. Next July, it will expire and she fears that it will rise to 6%, which would be unaffordable. It’s estimated that five million households will be affected by the hike in interest payments. Lenders have already withdrawn 60% of mortgages aimed at new house buyers.
The situation is equally dire for many renters in the private sector. Something like 40% of landlords have mortgages and are likely to pass on the extra cost to renters. The programme interviewed a young man who rents a two-bedroom flat with his partner. The landlord has increased the rent by £200 each month because of the rise in interest rates. They live in South London and already pay £1300 each month. The aspiration of home ownership will diminish still further for the young.
The programme did interview a couple of property brokers who were optimistic about the future. They also interviewed an estate agent who couldn’t predict what will happen. He stated that it would be crystal ball gazing and I think he’s right. Further rises in interest rates could spark a collapse in house prices and a return of negative equity (where the value of the house is less than the value of the mortgage).
Labour alternative?
The next whammy that the working class will face is the Tory plan to cut public services and or increased taxes. Do the Labour leadership have an alternative? They propose to introduce a windfall tax on excess profits of the energy companies, retain restrictions on bankers’ bonuses and tax the non-doms.
Although this should be supported, will it solve this crisis? I don’t think so. The mauling that Truss got from the ‘markets’ because she wanted tax cuts (for the rich) that were based on borrowing, is an indicator of what a Labour Government will face when in power.
Unless Labour adopts a radical programme of public ownership of the banks and major companies, it will be the B of E and their friends who will dictate, with a policy of austerity.
