NEVER give a sucker an even break, they say, and there were few lucky breaks for most of us last week, with petrol around £1.20 a litre, diesel at £1.30, a decent loaf of bread at more than £1 and cheaper mortgages less likely than Hillary Clinton for President.
The Bank of England's Monetary Policy Committee turned a deaf ear to homebuyers when it left interest rates unchanged at 5%. The move brings closer the prospect of a serious house price crash, not to mention recession.
Average house prices fell b
y 2.5% last month across the UK, pushing values down 8% since last September, according to the Halifax. The seventh fall in the past nine months has cut the cost of a typical British home by more than £15,000 to £184,111. The fall now looks unstoppable and it may only be a matter of time before it arrives at the border.
So members of the MPC are taking a big gamble by keeping rates high. The odds are increasing daily that the only lights at the end of the tunnel we are likely to see any time soon will be the headlights of an express train speeding straight at us.
Of course the Bank of England is concerned about inflation, as managing inflation is its entire remit, unlike the Fed, which has a responsibility not to damage the wider economy. But the inflation target is based on an arbitrary index, which might look starkly different if a few items were added or subtracted. Can it be wise to risk everything on an inflexible academic exercise?
From membership of the Exchange Rate Mechanism to the Gold Standard fiasco, the history of the British economy is a case study in the reckless folly of putting interest rates in a strait jacket. Time and again, a narrow remit, insensitive to the needs of the wider economy, has triggered widespread bankruptcies, job losses and a collapse in asset prices.
The level of UK interest rates can have no impact whatsoever on international oil prices or the cost of food at a time of food riots in other countries. All they do is hammer homeowners and homegrown businesses.
Taxes do push up prices though, so why should we be surprised to see inflation picking up in May after an April budget which increased excise duties, not least on cigarettes and alcohol? Inflation will come under pressure again in the autumn when the Government implements its 2p fuel tax rise, and again next year when the much-loathed higher road taxes bite. Meanwhile, mortgage lending has collapsed to record lows of half the peak of last year. Hardly surprising, given the recent price rises.
Some borrowers will now do better to stick with their lender's standard rate when their deal comes to an end. If your lender's SVR is too high, the next question is should you remortgage on a fix or a tracker? Views are split. If the Bank of England has its way, it is hard to see how rates could fall further this year. They may even go up.
But as the economic news deteriorates in the months ahead, as it surely will, many believe their hand will be forced.
If you have a £100,000 loan and a 25% deposit, your cheapest two-year fix will be with Ing Direct, the best five-year with the Co-op and the best two-year tracker with Yorkshire Building Society.
For those with only a 10% deposit, Direct Line has the best two-year fix, HSBC the best five-year deal and Clydesdale Bank the cheapest two-year tracker.
Personally, I look forward to that historic moment when the Chancellor announces he has instructed the Bank of England to abandon the Consumer Price Index as we know it. Let's hope he doesn't leave it as long as Lamont did to ditch the ERM.
Home truthsON MAY 11, this column berated the Council of Mortgage Lenders for not producing Scottish-specific housing information in "Lies, damn lies and housing market statistics". So I was delighted when last week the mortgage trade body produced a raft of new data revealing, for example, that the average Scottish first-time buyer is aged 28, compared with 29 across the UK, earns £28,611 compared with £35,029, and borrows £83,240 compared with the British average of £116,820.
The rest of us typically move again when we are 37, borrow £112,829 and earn £41,829. In all, the average Scottish mortgage is £99,000. This compares with the typical 38-year-old mover across the whole of the UK, who borrows £134,802 and earns £45,667.
All we need now are Scottish arrears and repossession numbers; but, as I always say, one step at a time.
