LAST week saw a concerted effort by the Tory-led coalition, aided by their friends in the bourgeois press, to deny that a catastrophic housing bubble has been stoked up by their ‘Help to Buy’ scheme.
The basis for the claim that there is no housing bubble rests on data released by the Land Registry which shows that in the first six months of the scheme – which guarantees mortgages with as little as a 5% deposit from borrowers – the vast majority of people taking up Help to Buy were not buying in London but in other, cheaper, regions of the country.
Therefore, the argument goes, the massive increase in London house prices has nothing to do with the scheme and by implication there is no housing bubble. The fact remains, however, that prices of houses in the capital are rising at a rate never seen before.
An average London house has increased in price by 17% over the past year, a stupendous £588 a day, taking its price to £435,000 – way beyond the reach of working class and middle class families who are unable to afford even a 5% deposit on this amount.
What this data actually shows is that the unsustainable bubble in house prices is not confined to London but is being driven out across the entire country.
This is what worries the living daylights out of the Bank of England (BofE) which, almost on a weekly basis, issues dire warnings about Help to Buy and the effect it has on ‘overheating’ the housing market with the inevitable consequences of a housing crash.
Such a crash would, as it did in the US in 2008, inevitably bring down the banks and mortgage providers who overnight would discover that all their loans had been transformed into un- repayable debts. The solution to the housing bubble, as far as BofE Governor Mark Carney is concerned, is to raise interest rates from their 300 year low level of 0.5% and try to dampen down the housing demand through making mortgages more expensive.
But he and the Bank are caught in a vicious trap. Failure to raise interest rates means continuing to stoke up an inflationary bubble as banks make fast and loose with all this cheap money provided by the government.
But raising interest rates will cause an equally catastrophic crisis. It is predicted that even a modest increase in interest rates would push at least a third of mortgage borrowers over the financial edge.
Figures released by the BofE last November reveal the extent of the debt crisis for ordinary households. They show that household debt in the UK has reached a record level with individuals owing a total of £1.43 trillion (including mortgage debt) a figure higher than the official national debt and about 140% of the average income. On average each adult in the UK owes £28,489.
Over four years of pay cuts, income freezes, below inflation level wage increases coupled with benefit cuts, all in the name of bringing down the national debt caused by the banks, has had the effect of driving workers and the middle classes into the hands of loan sharks – whether they are banks or pay-day lenders.
Any increase in interest rates will push the vast majority over the edge and into the abyss of abject poverty, house repossession and, quite literally, starvation.
Whatever the Bank and the government do to try and wriggle out of the crisis, is going to lead to a massive class confrontation as workers, young people and the middle class are confronted with the reality that this is the price capitalism must demand to ensure the survival of the 1% of bankers and capitalists.
The only way forward is to smash this bankrupt capitalist system by demanding that the trade unions take action and call a general strike to bring down this government and go forward to a workers government and socialism.