We won’t be asking the banks to engage in widespread repossessions, although there will be some. I can tell you they were really relieved to hear that, because the whole process ties them up for years – and they rarely get all their money back.
Instead, we have asked them to ‘extend and pretend’.
This means talking to you about extending the length of your mortgage, maybe only repaying the interest part of the loan or perhaps allowing you to skip loan payments for longer than usual before calling it a bad debt.
Banks will then be able to continue with their dividend payments and the vast majority of borrowers should be able to remain in their homes. Let no one say the Bank of England is heartless.
I’ve told the chancellor he is not to give any meaningful financial help to those with a mortgage. If he disobeys, we will simply increase interest rates even more to offset this.
Instead, I’ve suggested that the prime minister gives the banks a stern lecture about their duty of care towards customers. Hopefully they will comply.
It is always useful to have a scapegoat to blame in order to deflect attention and banks are particularly suitable for this role, if things go wrong.
Woe is me, too
It’s not been easy for me, either. The consequences of Covid have made my job much harder.
The large number of skilled workers still unable to return to the workforce because of an array of long Covid symptoms has made the current labour market extremely tight.
We at the Bank have privately discussed the need for interest rates to go much higher than markets expect in order to break this resilience.
Lest you think we are only targeting mortgage-payers, I must add that our higher rates are already having a knock-on effect on rents, which saw an annual rise of 5 per cent in May.
This allows us to restrain the spending of 46 per cent of dwellings.
Credit card debt and unsecured loans will also cost more. This is how we hope to limit the spending of the 17 per cent in housing associations and other social renters.
Spending and wages
Of course, there’s not much we can do to curb the spending of the remaining 37 per cent who own their properties outright, but you can’t have everything.
We have asked banks to be parsimonious in their deposit rates. I think it’s the least we can do in the name of fairness to all.
Higher interest rates also increase the cost of borrowing for businesses. We want companies to feel uncertain and hold off from pushing through price rises.
We want workers to feel worried about their jobs and accept that static pay is better than no pay. We’d be thrilled to see the airlines and leisure companies issue profit warnings.
