Interest rates due to rise? The part return of the sub-prime mortgage, the instability of the European project, China in decline, Japan continues to struggle, our own economy still not in recovery; are just some of the reasons that should concern us all. And the oil price factor is signicant as the downward pressures on prices and profits continues. Add to this the doubts about the USA economy, the wars, the chaos of the UK housing market, the buy to rent brigade, rents, the fix for the rich – political system and we all should have concerns. And we still refuse to regulate, and downsize our banks to the needs of our communities. Simplistic macro economics!
A generation of mortgage borrowers who have never seen a rate rise are in for a shock. When they can’t afford it, spending will be slashed. The slowdown could get worse and this will affect the entire economy.
The US central bank, the Federal Reserve, raised official interest rates from their post-crisis low last month, the first rise in nearly a decade. Historically, the UK tends to follow close behind. But we are so concerned about the world wide economy, that we plunder on for fears of stalling the economy any further.
And British households, with their record unsecured borrowing and sizeable mortgages, are more vulnerable to rate rises than in the past.
Households have debt worth 135% of their income according to the so called independent Bank of England.
This is well above the pre-slump norm of around 105%, and it’s creeping up again. Unsecured borrowing from credit cards to personal loans is above its pre-crisis level, at £11,700 per household, up £600, according to a recent TUC analysis.
Those who took out a mortgage since 2007 have never seen a rise in the Bank of England’s base rate. And with the average mortgage charging interest of just 3.07%, even a rise of 0.25 percentage points would hurt. It would mean the amount needed to pay interest on the typical mortgage would rise by around eight per cent.
Together with all these factors, we continue to create fictitious capital to mainly buy bad debt- bank bonds. We have failed to adequately regulate our gambling casino- stock markets and all this points to a further slump which will harm us all. Having predicted the 2007 crash I would advise – under the bed for your money again. Even as I write, the savings rate is still abysmally low.
The worldwide crash seems again to be around the corner and it will be difficult to escape for most, unless we change our economic policies and system soon. Watch this space or my posts on Facebook.
Ivor Timson 