This week was the turning point. The Bank of England, faced with incontrovertible evidence of rising inflationary pressure, finally pulled the plug on the housing bubble and raised interest rates.
Moreover, everyone understands that rates won't be sticking at 5.75 percent for long. Homeowners can expect at least one more rate increase by the end of the year. Even 6 percent may not be the end of it; inflation is a stubborn beast; it is difficult to kill quickly. It would be foolish to rule out further increases; perhaps later this year or maybe early next year.
The rate increase brought out the usual and predictable screams of anguish from homeowners and businesses. Mortgage payments are spiralling upwards; and a wave of home repossessions will follow. Likewise, businesses will find their financing costs higher; investment will decline, bankruptcies will increase, and unemployment will rise.
However, should we feel sorry for anyone facing repossession? After all, did anyone force homebyers to sign up for bloated mortgages? Many people understood the dangers that come with speculative bubbles. They preferred to stay renting and faced a barrage of contemptuous commentary about being shut out from owning a home forever.
Homeowners facing repossession certainly brought some of their woes upon themselves. Nevertheless, there are other, more guilty, bubble-villians more deserving of contempt. Starting from the top; the Bank of England and its irresponsible recent monetary policy decisions, created a period of ridiculously low interest rates that lured unsuspecting and financially naive borrowers into the housing market.
Estate agents also bear a heavy responsibility. They talked up the market; misled people with their ignorant claims that housing is an investment, and that in the long run, it is impossible to lose money. They were ably assisted by a plethora of cheap and nasty property shows that broadcasted the lie that the housing market was a bottomless pit of untapped wealth.
Finally, there are the banks and building societies. Rather than turning away desperate homebuyers, lending institutions entrapped them with deceptive teaser rates and fixed charges. Lending standards deteriorated. Lending volumes mattered more than lending quality. For the last five years, the banks and building societies were setting themselves up for a wave of defaults and deteriorating balance sheets. Don't be surprised to hear about failing banks and bankrupt bulding societies.
As my dear old Grandma always said; stupidity always has a cost; stupidity is always punished. Now, the housing market moves from hubris to retribution. The agony of higher interest rates will be protracted. There will be a falling off and what a falling off it will be.