As Phillip Inman noted in the Guardian yesterday:
How can the Bank of England avoid being a loyal and trusted friend to Nigel Farage? That's easy. It could say the cost of borrowing will tumble over the next year, step by certain step, until it settles at a level that is low enough to boost growth.
Each cut in interest rates from today's 4.25% to 3%, or even better 2.5%, would be used by businesses to boost production, make crucial investments or pay down debts, making them more financially secure.
The economy would begin to move ahead, lubricated by cheaper loans. Younger homeowners – those with a mortgage – could spend more on furnishings and a meal out. Some people might make life-changing decisions, such as buying their first home, swapping a diesel car for an electric one, or taking on extra responsibilities, such as having children.
It's not really rocket science to work this out, unless, of course, you are a banker, when it is incomprehensible. And that is precisely why the Bank of England should not be in charge of interest rate setting, because this is not, never was, and never will be just a technical exercise, which exercise is in any case, one that the Bank does not seem to understand.
It's time to weaponise the economy against fascism. Is that so very hard for Labour to work out?
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The only problem with lower interest rates is that house prices will be boosted.
So, we require reduced credit for lending.
Next problem?
I am sure, in my youth, all lending was regulated. You had to explain what the loan was for and, for example, a loan for a car had a different interest rate from a loan for consolidating debts. You couldn’t get a mortgage unless you had been saving with the mortgage company for at least 2 years and the amount that could be lent:income was an absolute fixed rate. BTL mortgages were an absolute NO.
Why would it be a problem to go back to that?
No
It might be desirable.
But, it did to some extent reinforce privilege at the time, via access and the ‘who you know’ network. We do need to avoid that risk.
Cyndy Hodgson recalls the lending strictures of her youth. In 1976 then again in 1979 we got local authority mortgages (Norfolk County Council) . These were close to 100% and especially aimed at younger people and families, and could be lent on houses (like ours) that needed considerable works to bring them up to standard, houses that no building society would lend on. Plus generous grants for renovation too. I have no memory of what the interest rate was at the time, but I know it was a great enabler and was (just!) affordable on one lowly professional salary. What a mess it all is now.
I knew of those schemes.
Italy, for example, still has them.
Parts of the U.K. very definitely need them.
Here in the Nethetlands, every attempt by local councils (often centre-left coalitions) to reign-in excessive property speculation is stymied at national, right-far right level.
Their latest ruse: councils assigning a maximum price per m² for new builds has been “tackled” by a new form of mortgage, whereby the property developer comes up with a “missed profit” calculation based on what they say the price would be without the cap.
The house is sold for the max (lets say €250,000) based on the cap but market value says €300,000 was attainable. The buyer then buys at 250k from the property developer who then tacks on 50k shortfall and keeps the deeds until the lost 50k is paid!
If you sell on for a profit AFTER repaying the 50k, you also have to pay the property developer a % of the profit: in the above case 50k is 20% of the purchase price do you’d pay the property 25% of the profit after the 50k is repaid.
I kid you not! This scheme is utter madness but accepted by the right-wing eejits who are ruining this once great nation.
I agree: total madness
I understand that so-called “builders” (speculators) are sitting on land with building permission for circa 1 million houses (certainly north of 300,000). Give them 2 years to start building after which permission is revoked – gov moves in and buys @ low cost (cos no permission) get permission and starts building. Flood the market with property (or make it all council owned/social – would have the same impact – house prices would be static in the face of local cost rental and/or fair cost new build.
Wholly agree. We could adopt the Swiss approach where it is regulated by the municipality (effectively the council). It avoids property developers land-banking, etc. It has lots of other advantages as well.
Hmm………hang on there Mike, the other thing might be that on a number of sites where I have been managing the purchase of s.106 purchases (where the developer has to provide 11% affordable units at 52% open market valuation – lose money on them – through planning permission), such developers have had to start to build infrastructure such as shops and schools and put in private management companies to manage the new estates instead of general fund supported services.
The question for society is, why do housing developers have to build schools, shops and other social amenities (parks even – honest)? Why should that sort of stuff not be the remit of centrally well funded local authority?
So for me, looking at the added costs of these facilities, as private developer Mike I’d be shitting my pants to be honest and cutting costs elsewhere on the build looking at the costs rise (+ 20%).
The thing is Mike, development is a very risky business and I think this ‘politically ideological bent’ for letting the market deliver all solutions is just going too far. It’s not fair on the developers and in the long run it will not be fair on the residents either. Infrastructure belongs to the state and its deep pockets as originator of the currency needed to do big projects. The state could give those s.106 developers the missing 48% of the cost of those units, but is so committed to rolling back its involvement in housing that it won’t go there.
It’s all fucked up as far as I am concerned. It’s not a plea on behalf of developers either, it’s just that this way of working does not work and those who work in it are all victims of bad thinking in politics.
As Richard says quite often we need a mixed economy of delivery – private and public – but in housing that has gone out the window already in my experience. And what makes it worse is that in this private provision, there is an obvious disconnect with the system of democracy and accountability.
FYI: “Land Banking” does NOT work in the the USA (especially in Florida) because once a parcel of land receives “new” planning & zoning permission for a PUD (Planned Unit Development) or a platted Sub Division, the revised local property tax rates based on the “new” planning & zoning permission property value immediately kicks in. Also, any infrastructure (a school, roads, traffic concurrency, potable water, sanitary sewer…etc..) promised in order to get the “new” planning & zoning permission and permit must commence within 6 months of permit issuance and be completed with in 24 months (this time line is a rule of thumb for sake of discussion and may vary slightly from project to project). Again, the new property tax rates kick in immediately!
Once a developer receives Planning & Zoning Permission and a permit to commence is issued, he/she must get started ASAP so they have the cash flow to meet the obligations of increased property tax, bond payments and promised (negotiated) development infrastructure improvements. If the developer fails to deliver, the municipality will the take the bond money put up at the time of receipt of commencement permit and finish the job themselves. Any costs overruns will be back-charged and extracted from the developer. Make no mistake, there will be cost overruns as municipalities only use the best of the “approved” contractors and everything is done 150% by the book due to the liability.
Thanks
House prices are absurd as it is. I don’t think reducing interest rates would increase them massively, but in any case restricting credit would lower them, as was the case before Thatcher – who was wrong about almost everything – allowed the banks into the housing market in 1980.
It was also – I think – a Tory PM who abolished the old Schedule A tax on imputed capital gains on domestic property in about 1963, which had had a disincentivising effect on property price rises.
Starmer’s fantasy of reducing prices by increasing supply is just absurd unless credit is also restricted. Imagine, too, the volume house-builders on whom his fantasy rests, building to a degree that would actually lower the price of the finished product! LINO indeed.
Unfortunately, yes it is too hard for Starmer and Co to think like that because they are not politicians, they are merely brand managers reacting to the latest market feedback. So, they go out of their way to align themselves with their ‘customer’ base and go down the Blue Labour route, aping fascist tropes and associating with these fascist sentiments in order to sell themselves.
It’s a bit how brands try to work with major sporting events and other social changes. It’s not about changing anything – that’s just too risky for Starmer , it about accepting life as you find it.
I like the description of today’s politicians as being merely brand managers reacting to the latest customer feedback. It very neatly summarises where we find politics today. I shall adopt this description in future debates!
The problem is that mainstream politics and economics does not want to challenge Farage on any matter of substance, it want to replace home to better control a corrupt economics for their own advantage.
Reducing interests rates would indeed be a good idea for the greater good, but Inman’s mistake is in thinking people like Rachael Reeves are interested in the greater good. They are only interested in the ideological dogma that furthers the cause of fewer number.
Couldn’t agree more Richard.
Although the idea of making the BoE independent had some merit, we are now well past the time when government needs to own and reform the decisions of the BoE. Bailey’s incompetence is astonishing.
“it want to replace home to better control a corrupt economics for their own advantage.”
I am a Yank who is “Lost in the Pond” as I do not understand this statement.
John Maynard Keynes.