IN its direst warning to date on the scale of personal debt, the Bank of England has predicted that half a million families will fall into mortgage arrears and face home repossession once interest rates begin to rise.
Since 2009 the Bank has held interest rates at the ridiculously low level of 0.5%, the lowest for over 320 years.
The reason for such a low interest rate on loans, was the necessity for British capitalism (along with every other capitalist country) to provide virtually free money in the immediate aftermath of the 2008 international bank collapse.
This rate was allied to the programme of electronically producing vast quantities of worthless currency under the Quantitative Easing schemes, to be handed to the banks in order to prevent their complete collapse.
This policy encouraged families to take on mortgages whose repayments could just about be met as long as the interest rate remained at this low level.
A housing boom was created, a boom that the Bank now fears is about to turn into a bust as the pressure is on to increase interest rates.
A survey conducted by the Bank found the average outstanding mortgage debt for a household stands at £83,000, these households also had on average an additional £8,000 of unsecured debt (credit cards, bank overdrafts etc.).
An increase of 2 percentage points on the rate would push half a million families into default and put them at risk of repossession.
This, however, is not the true extent of the crisis.
The Bank is making this prediction based on the assumption that at the same time as interest rates go up, wages will increase as well.
In its Quarterly Bulletin the Bank states: ‘Assuming a 10% increase in income for all households, a two-percentage-point rise in mortgage interest rates would likely raise the proportion of mortgagors with a debt service ratio (DSR) of at least 40% from its current level of 4% to about 6%.’ It goes on:
‘The number of UK households in this vulnerable category would increase from about 360,000 to 480,000. But the impact would be more severe in a second, less likely, scenario where there was assumed to be no increases in incomes.’
Half a million families are at risk of default even if their pay is increased by 10%!
Who on earth at the Bank thinks an increase in wages of 10% is ‘likely’, is living in a dream world.
All capitalism is offering is permanent austerity, permanent wage cuts and a regime of part-time or zero-hours working.
Over the past five years, wages have been systematically cut to the extent that public sector workers have suffered a cut of £2,245 a year in real terms in the life of the coalition government.
Millions of families struggling to make mortgage repayments will be tipped over the edge and find themselves out on the street as the housing bubble – deliberately created through cheap debt to provide profit for the speculators, while at the same time generating cheap money for the banks – explodes.
Not just those families with mortgages will suffer from any rise in interest rates.
The Bank also reported that the ratio of household debt to income stands at over 110% on average.
British capitalism has kept going through a massive expansion of credit – credit that is now turning into unrepayable debt.
It has created a time-bomb of debt that will explode with even a trivial increase in interest rates, pushing millions of workers and the middle class into the abyss of poverty and homelessness.
There is no way out of this crisis for capitalism – low interest rates and QE have produced asset bubbles in housing and on the world stock markets that are set to explode, while curbing them is only hastening the inevitable crash.
The only way out of this crisis for the working class is to put an end to this chaotic and historically redundant capitalist system once and for all through the organisation of the socialist revolution.