As we approach Christmas – a challenging time for most household budgets – I do wonder if we’ve been stoking-up and deferring a wide range of systemic housing, financial and economic problems?
Last week saw the Bank of England (BoE) hike base rate interest again by half a percent. That’s nine increases in the last year, from 0.1% to 3.5%. On a £200,000 mortgage these cumulative increases could add over £400 a month to your mortgage compared to this time last year.
The BoE’s justification for increasing the cost of borrowing – lest we forget its actions put the price of credit up generally – is to try and lower inflation. Inflation dropped from 11.1% in October to 10.7% in November.
I don’t believe the BoE’s monetary policy is having any tangible impact on inflation. The bank’s primary job of getting UK inflation down to 2% is pie in the sky stuff. In reality, the BoE is enabling lenders and creditors to extract billions more from household budgets in its unnecessary and regressive interest rate rises.
Earlier this year, Unite the Union published its “corporate profiteering” report which included an analysis of the profit margins of 350 of the UK’s largest companies. Profits were 73% higher in 2021 than pre-pandemic levels. And they’re up again in 2022.
Unite estimated that price gouging – where sellers increase their prices way beyond fair and reasonable levels – accounted for 60% of UK inflation.
The rest, as we know, has been driven by external factors including the price of oil and gas, and the impact of the Russian invasion of Ukraine.
Some politicians, and indeed the governor of the BoE himself, like to blame workers’ demands for affordable living pay awards as a key driver of inflation, but that isn’t borne out on the facts. Most pay awards are way below inflation.
House prices are still on the rise, but house purchases are down as more people act cautiously. We’re in recession and the BoE’s policies have exacerbated that problem in my view.
The average house price in Scotland from Office of National Statistic figures is £192,000, with prices having risen by 7.3% to the year to September.
What goes up must come down and I suspect a rise in mortgage defaults and repossession actions next year.
In November, Anas Sarwar MSP launched a mortgage rescue package to head off needless repossessions and homelessness next year.
There had not been a single successful applicant to the Scottish government’s Mortgage to Shared Equity Scheme since 2016; in the last six years there has only been 181 successful Mortgage to Rent applicants across Scotland.
It’s understood the Scottish government are looking at Scottish Labour’s proposals to revamp the much-needed Homeowner’s Support Fund as an essential safety net in society. We need a new workable Fund as soon as possible and certainly by the middle of next year.
Meanwhile, in the private rented sector, landlord’s representatives remain opposed to the 2022 Cost of Living (Tenant Protection) (Scotland) Act. This law put a hold on private rent increases until next March, with the possibility of a further 6 or 12-month extension overall.
Landlord bodies, such as Propertymark, have recently surveyed their letting agent and landlord members. 83% of agents said that landlords would be inclined to increase rents between tenancies as a result of the 2022 Act to cover impending and rising costs.
They also claim that 85% of agents report landlords have expressed a wish to sell their properties.
I remained unconvinced about a large exit of private landlords from the Scottish market, not just because I’ve heard this PR line for over 20 years, but because rising property prices are still the best hedge against inflation in the UK.
For me, the obvious worry is we’ve created a massive moral hazard if you simply end the rent freeze next March. You would have a cliff-edge moment where many landlords would simply make up for the last six months by imposing inflated rent increases.
If that were to happen would have been the point of the Cost of Living (Tenant Protection) Act?
There will be a compelling case to extend the rent freeze, however, in the medium term we need to new fair rent legal system in Scotland to avoid the cliff-edge scenario I’ve described.
That can’t wait and needs to be in place as soon as the 2022 Act is no longer in force.
If a small additional number of private lets – typically in tenements in our largest cities – come on the market over 2023/24, the Scottish Investment Bank should be working with councils and housing associations to
bring these back into the social rented sector with affordable
rents.
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