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Archive for the tag “Bank of England”

UK Housing Prices & Inheritance

The Governor of The Bank of England has again warned of the risk to our faltering small recovery and of the need to build more houses or the increasing likely hood of raising interest rates to dampen down house price inflation. Also in the news is the widening gap between the rich and the relatively poor.

Political attention is likely to focus on the house price boom because for politicians this is the easy option but this is allied to increasing inequality of not just wealth but also inequality of opportunity. The main cause of inequality is inheritance and if this were tackled the housing inflation problem would largely solve itself. Many of the last generation bought homes at more or less sensible prices and have seen their value increase many times over the general inflation rates, an increase that is not earned. When they perhaps down size or die they can pass on to their children large sums which their offspring can use to buy their own homes; homes that without this unearned windfall they could not otherwise contemplate. This of course helps to both maintain and fan the fires of house inflation.

In addition to passing on their inflated homes, the wealthy also can afford to give their children the best start in life with all the advantages that money can bring and bequeath their accumulated funds that enable the offspring to acquire even more and so the cycle continues. Apart from a few exceptional individuals the poor will remain poor and indeed, become even more deprived as wealth becomes more concentrated in the hands of a small minority. The result of this imbalance is that the nation as a whole will lose out on ideas, businesses and social benefits due to the suppression of the less well off who cannot make or even recognise the best use of their talents or from lack of capital to advance their ideas.

What we need, but is at present anyway, unlikely to be done, is a strong inheritance tax which some may say is even punitive. If someone builds up huge wealth there is no reason that he/she should not enjoy a rich lifestyle for as long as they live but equally there is no reason why their children should continue to enjoy that lifestyle simply by being born into that family. Money raised from this taxation could then be used to improve the conditions of the many and provide start up funding for brilliant new ideas and enterprises.

There would be many arguments against a firm inheritance tax and it’s implementation would be difficult but not impossible. How it could be done is what we pay politicians for.

 

 

WARNING UK

WARNING! Never mind that over a million people are on zero hours contracts so don’t show up as unemployed or that thousands have their benefit suspended for spurious reasons and they too don’t show as unemployed. The official unemployment figures now show 6.8% so remember, the Governor of The Bank of England said ‘when unemployment falls below 7% he will consider raising interest rates.

You should know by now, I’ve told you often enough, that those who are really in control want you in debt, lots of debt, so watch out as your mortgages will soon rise and your credit charges go up.

Opportunity to be Lost?

The Government is doing all that it can to re-finance the banks in order to get them lending more and to help this along the Bank of England is steadily lowering interest rates which are heading towards zero. Other governments around the world are taking similar actions and Obama expected to announce a massive cash injection into the US economy.

In order for the banks to lend, someone must borrow which is pretty self evident. People and business borrow in order buy something, again pretty self evident. The more people buy and the more that they borrow in order to buy more then the faster industry works and the economy, national and global, expands . Again, it is self evident that this cannot go on indefinitely. Economic growth must hit the buffers sometime. OK I know this is Marxist theory but it is also commonsense. The global economy has hit the buffers and the political engineers are now doing all that they can to move the buffers further down the track, build up a credit based head of steam once more in order to hurtle down the same track heading for the same result at an indeterminate date in the future.

The housing market is used by many as a yardstick for the health of the economy but it’s the same story here. House prices cannot increase above inflation ad infinitum but while they do rise to dizzying heights their buyers are saddling themselves with huge debt, meaning that they have to work longer and harder and often put off having children just so they can pay the mortgage. Is this the life that we want for ourselves and for our children, if we manage to have some? Some mortgages are already crossing over to the next generation.

We have an opportunity with the current crisis to pause and take stock of what is best for our health, mental, physical and spiritual. Houses are losing their value and easing to a more sane level but have a way to go yet. Good! If government could but grasp the nettle and decree a return to mortgages being granted on the basis of 2.5 times the annual earnings of the highest earner in a partnership, life would be far more pleasant for those making the purchase. State investment in social housing would keep the building industry active and aid recovery too.

The fat cats would squeal in anguish of course but I don’t think I would lose any sleep.

Credit Crunch & Housing

Due to the shortage of finance within the banking and building society sector and the rising interest rates, the building of new homes is slowing dramatically. The big building companies such as Barrett and Bovis are cutting back on developments and even leaving the interior completion of homes until sales are agreed.

Many people will soon have their mortgage rates raised dramatically when their fixed term agreements come to an end. Coupled with the down-turn in the economy and the general feeling of financial unease it is inevitable that a lot of distressed home buyers will find their houses repossessed, a fact confirmed by the Bank of England yesterday. The plan and hope of the Government to build 3million new homes by 2020 begins to fade.

However, if the Government could but see it, this can be a moment of opportunity. Land is the biggest cost for homes but the Government holds an enormous amount, particularly the Ministry of Defence, that just lies unused. If they gave (yes, gave) some of this land, where appropriate, via local authorities, to build homes for rent and not for buying then several things would result. Firstly and most obvious, there would be more homes for people to live in rather than a make money investment and with more home buyers becoming dispossessed there will be an even greater need for rentable homes. It will keep the building industry in a healthy condition providing employment and training ready for the inevitable but eventual upturn. A huge amount of employment depends on new housing, not just the suppliers of building materials but furniture, white goods, carpeting, decorating products and so on. Another benefit is that a vibrant public rented sector would put the brakes on rampant house prices in the future making for a more stable market.

Yes the Government would have to give financial assistance to the local authorities but this would be a lot cheaper in the long run than coping with the costs of unemployment, family break-ups, paying for people in hostels, B & B’s etc. and in addition keep on target for 2020.

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