Mortgages, the Economy & the Referendum

While the No campaign fails to give a tangible reason why Scotland is currently better together with Westminster their tactic instead is to speculate on what might happen if there’s a Yes vote, whilst ignoring any challenges that exist for the UK.  With their efforts focussing on people’s pockets, there has been a constant mention of mortgages but no real substance on the issue – I thought some substance may help.

Before thinking about Scottish independence, it seems prudent to first consider the current UK trajectory. During this summer we have had an indication that the low interests rates that we have seen in the UK over recent years are coming to an end.  In June, it was reported in Forbes that ‘the end of U.S. quantitative easing looms and the start of the end of zero percent interest rates is over the horizon for the U.S. and the U.K., but it is coming.’  I’m sure it is a coincidence in terms of timing but it looks like this prophecy is set to become reality in the months that follow the referendum with the Bank of England’s governor, Mark Carney, warning trade union members this week that they face higher interest rates next spring before they receive rises in real wages.  This clearly doesn’t just affect trade union members – an increase in interest rates is something that impacts everyone and so it is important to look at salary levels too and what is going to be the most effective way to drive them up.

This Guardian article highlights the issue that has again manifested under Westminster’s watch:

The problem for families isn’t only that their wages have been frozen year after year. Inflation has soared, too. As a result, wages in real terms – adjusted for inflation – have actually fallen. At one point inflation hit 5%, while wages were growing at around 1%. Even now, wages are growing by just 0.6%, while inflation is at 1.6%.

The squeeze on wages has left millions drowning in debt, only just able to get by. Low interest rates, government assistance and leniency by banks have kept households afloat.

But far from getting easier, things are set to get even tougher for these families. Carney has warned that interest rates will rise before wages increase in real terms, which the Bank does not expect to happen until later next year.

An increase in interest rates could push some families into a spiral of indebtedness, charities have warned. An alarming report by the Resolution Foundation released in July found that interest rate rises over the coming years would lead to more than 1 million households facing a problem with debt repayments.”

With the UK debt continuing to spiral and with another £25 billion of austerity cuts to come from the Westminster government the prospect of significant salary increases in the public sector seems slim (unless you happen to sit in Westminster that is, in which case a 10% pay rise is coming).  Anyone who thinks that voting No is voting for ‘more of the same’ is frankly deluded – the world is always changing and the referendum is ultimately looking at the best way to move Scotland’s society and economy forward.

The prospectus from the No campaign is that the priorities set by Westminster are what is needed – I firmly believe that Scotland’s taxed wealth would be far better if we didn’t contribute our ~10% share to the spend of £100billion on a next generation nuclear weapons system (a programme which is set to start in 2016 if we vote No), or the ~10% share of the HS2 rail link £50billion cost.  With the austerity measures set to fall hardest on public services, it will be the poorer majority who feels the impact of these cuts the most, much as they have done with the VAT tax increase that the UK government put in place in 2011.

So what is needed to grow the economy?  The lack of vision from the No campaign on this should have alarm bells ringing for everyone, with the half-baked and panicked statements on devolution increasing the uncertainty of what might follow a No vote.  No matter how they tweak devolution though, I don’t see any tangible return coming to Scotland from the large scale projects of nuclear weapons or HS2 and instead would far rather that this £15billion of Scottish wealth was used to invest in our own infrastructure – I believe our transport infrastructure would benefit from some large scale projects and / or we could even build more affordable homes to get back to the mortgage theme.  I wrote more on this here, but either way such endeavours will create jobs in Scotland which will clearly be a good thing.

Creating affordable homes is something of an alien concept to the UK government who have previously tried to run their economy on house prices forever spiralling upwards.  However the crash that happened in 2008 because of this flawed economic approach seems to have taught them nothing and again, there’s fervour from the UK government as they see house prices increase.  Through this year we’ve been seeing ~10% increases on house prices which far outstrips the average salary increase of 2.5% and only serves to make homes less affordable, and sees more people struggle to afford their mortgage payments (as reported in a study this week).

In an independent Scotland mortgage rates will continue to be based on the interest rate set by the Bank of England, which in a Sterling Area will be exactly the same for Scotland as for the rest of the UK, just as it is now.  Banks make a good business from mortgages and we have a multitude of them competing for homeowners business – this is a global constant and an independent Scotland won’t be any different.  So with the interest rates consistent regardless of the vote the real challenge is improving the affordability of homes.

A Yes vote provides the opportunity for Scotland to set a different course, to treat decent housing as a basic right and not as a tradable commodity or as a political football.  I believe that most people rent or buy a home because they want to live in a space that they feel is their own and can have a sense of pride and security in it.  It should be a concern if house prices start to accelerate beyond increases in salary levels.  The No campaign claim that we are ‘Better Together’ but it is clear that they have abandoned too many in society.  A Yes vote provides the opportunity to provide housing across the nation that we can all be proud of – now is the time.



About stuartmdarling

I live in Motherwell & work in Edinburgh in the Oil & Gas sector, which has been taking me around the world for 15 years now. My passion for politics and music go with me every step of the journey...
This entry was posted in Economy, Politics, UK problems and tagged , , , , , . Bookmark the permalink.

2 Responses to Mortgages, the Economy & the Referendum

  1. Danny Harrison says:

    Brilliant again Stuart, I actually made a similar comment in a discussion with my wife just the other night.

    People need to be very aware that regardless of where you live in the (present) UK when interest rates are zero, there is only one way that they can go. A large chunk of society are sleeping walking into a so called “status quo” that is at least as risky as a Yes vote in costing them their home.

    I say “risky” using their terms but I, like you, firmly believe that we can get it right with how we prioritise our capital spending in Scotland post Yes

  2. Pingback: Why I’m voting Yes | Darling Blogs

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