While we were all frothing about Harry and Meghan, the strikes and the cold snap - the Bank of England quietly raised interest rates for the ninth consecutive time. Ninth. The base rate for borrowing is now 3.5% which means there’s a strong likelihood that by the time you next re-mortgage - your payments will have increased by 100%. That’s the slightly misleading thing about Interest Rates, isn’t it? You say “up by 1%” and it doesn’t quite yield the same oooomph as: “Merry Christmas, your mortgage just doubled”. I mean, 3.5%? 1%? 0.5% All these numbers sound paltry? It’s only once you’ve put them through whatever slick, cartoony mortgage-calc YOU’VE found online, you realise how hilariously misleading they are. “Oh, they’ve increased the mortgage rates by 0.5%, luv” “Pffff… 0.5%? I mean, why did you even bother mentioning it?” “Because that’s another three hundred quid we have to find every month now” “WHAT THE FUCK” If I told you the price of Pain au Chocolates was being increased by 0.5%, you probably wouldn’t bat an eye, right? Probably because you don’t have to buy Pain au Chocolates, you fat shit. But also because when you do, 0.5% of £1.30 ain’t shit, as they say. In fact even 0.5% of your weekly trip to Tesco is, err, shit all. But a 0.5% increase on a fuckin’ HOUSE? An overpriced £390,000 HOUSE!? Well, then I’m afraid then it *is* shit. Then it’s Shit Actually. As I’ve said before, it’s still a bit of mystery to me why they keep hiking rates? I mean, it *IS* something that is typically done at a time of inflation. But ours is not a typical inflation. For context: traditionally, when people have too much disposable income and the economy becomes overheated, inflation soars; And so the idea is that if the BoE make Mortgages and Rents a bit more expensive, people will have less money to spend on everything else, they're incentivised to save... and so the broad cost-of-living (& inflation) comes down. That’s… the theory. But that only works in the scenario where the root of your inflation is something traditional (or domestic) too. I’m no Economist, but I’d imagine a strong native currency (which would make it cheaper to buy petrol/gas/foreign products and would leave more money in your pocket which - in-turn - would put greater demand on products/services and thus prices would increase) OR maybe a boom in housebuilding which - if significant - might bring down house prices (& rents) and thus leave us all with more disposable income, en-masse etc etc; BOTH of these i could see spawning traditional inflation. But this is not some domestic, Britain-specific bout of it. Yet the Bank of England are reacting as though it is. Our currency isn’t turbo charged any more than our housebuilding has boomed. Both are quite the inverse of that, in fact. THIS inflation has been come almost directly from the international gas market. Fix that, you fix inflation. Don’t fix that (and instead focus on raising interest rates) not only do you fail to fix inflation but you also make life miserable for millions of people who lose their homes. “Yo, Hunt, did you manage to get prices down for everyone?” “No, but I did manage to rescue ten million people from the wrath of Financial Stability.” “Oh… err… good?” As I say, I’m not an Economist. And in my lesser moments, I've assumed there must be some smart person reason why they’re doing this the way they are? A driver for it. The obvious fiscal motivation that might sit outside the expertise of an internet shit-talker. I mean, these people went to Oxbridge, they’ve studied geopolitics and financialisation, and the newspapers don’t seem too worried? lol. They must know what they're doing!? So fuck it, let's do this dance. Let's assume there is a half-credible reason for the Chancellor and BoE to continue reacting this way, that it will ultimately settle the British economy. In that frame of mind, it’s natural to look forward and wonder what’s likely to happen if the events of today - their decisions, their policies - run into tomorrow, and into next month... ...and into 2023. So, if interest rates get to 6-7%. If millions are unable to re-mortgage and are forced to sell at the same time, what will happen? “Well, it'll be amazing!” commenters comment. “It’s about time the cost of a house came back down to 3x the average salary!” Over-optimism has entered the chat. As far as I can see, three things will happen in the next 12 months: First, families (like my own) will be forced to sell at lowered prices. Some will escape negative equity. A huge number won’t. Both groups of people will be propelled into an already overheated private rental sector and that rental sector is currently so fucked (in the South East at least) that Estate Agents routinely report having rented properties at OVER THE ASKING PRICE and sometimes without even having been viewed. There is no real Social Housing to speak of so the market rate for private rentals will soar. And it will be aggravated by the BoE, whose interest rates will also impact Buy-To-Let landlords, who will pass on the cost of their mortgages to their tenants. A £1,200/month 1-bed will cost £2,400. And that’s before the other 20 prospective tenants start trying to out-bid each other with over-asking figures, which could push it from £2.5k to £2.7k - just for regular people to find somewhere to live. Substandard housing will begin to spring up. Breezeblocks with a tin roof. Rented sheds. People living in cars or tents. Second, billionaires will get richer. Investors with liquid capital will foresee this chain of events and begin to buy-up domestic properties. In fact they already have done. Goldman Sachs, Lloyds.. have both sought to become everyday landlords. Third, no, you won’t get a cheap house. In the 2008 crash, the cost of an average UK home dropped by 20%. Did that erase twenty years of shit-all housebuilding, supply-and-demand and peoples’ desperation to get on the ladder pushing up prices? No. It tempered the market for a couple of years, sure. But a 20% drop in value on a 3-bed house in Buckinghamshire is still going to leave it at about £380,000. And with hiked up interest rates, even if it dropped another 10%, you still wouldn't be able to afford the monthly repayments. You're omni-fucked. Fiscal cuntery². Anyone dreaming that we’re going back to the days where a postman’s salary, his single income, could support a family of four, a roof over their heads, on a twenty year mortgage - while the mother of his children stayed home with the baby, is doing precisely that: dreaming. Realistically? All this next crash will achieve, in terms of cheaper housing? ...is a wholesale discount for the billionaire class. Still, Harry & Meghan, eh? For similarly uplifting content, maybe check out my podcast: Aid Thompsin and Other Disappointments.
