Julian Knight: We're a nation of credit haves and have nots
Some super-cheap loans and mortgages are available – but only for the chosen few
Saturday 12 October 2013
Credit is now cheaper than it was in 2007. Yes, you read that right, best-buy loans and mortgages are less expensive than they were prior to the financial crash. In fact, you can now fix your mortgage at a rate below inflation for two, three or five years.
In effect this is giving you money because over the course of the loan – provided inflation stays where it is or increases – then its value will in part be eroded by prices. This is the first time I can remember that being the case and in the main it is the Bank of England's Funding for Lending Scheme, which is pumping billions into lenders' coffers, that is to thank or blame – depending on the view you take of credit.
But the headline rate is only part of the story. The reality is that these super-cheap loan and mortgage rates are only available to the chosen few and many of these people frankly don't need to borrow. If you aren't in this elite, credit suddenly gets a lot more expensive – if you can get it at all.
Funding for Lending has done very little for small businesses – they are still finding it difficult to get money to expand – and this will have major implications for the UK economy as a whole as the recovery gathers pace and inevitably sucks in imports because domestic firms can't expand to meet demand. Overall, there has never been a greater difference between the borrowing rates paid by those with a good credit score and everyone else, including business. Incidentally, this is a reason why Help to Buy does actually fill a gap. The mortgages aren't that cheap – around 5 per cent – but at least they are there to be had.
In short, this golden period for borrowing is a bit of an illusion for most of us – in the same way that the house-price boom we keep hearing about doesn't apply above the Watford Gap.
Energy firms show contempt
A few weeks ago, after the Labour leader Ed Miliband announced that he wanted to cap energy prices, I wrote that the power companies had a simple choice: either ignore the undercurrent of discontent and take their chances as a key debating point in the next election campaign, or change their message and correct some of their abuses.
The initial signs are that they are hell-bent on taking the country on. Energy UK was deeply stupid to greet Mr Miliband's announcement with the threat of blackouts, especially as we are now facing a host of price rises.
The response of the energy minister, Michael Fallon, was interesting, calling on the public to switch from SSE, the first company to announce a price rise. I have never heard a government minister – least of all a Conservative – take such a line before. Clearly the Government is very nervous about how this plays out in the country.
I find it incredible, from a purely public-relations perspective, that the energy companies thought it a good idea to raise their prices right at this point. Now they will say, of course, that this is purely a business decision, but in the wake of Mr Miliband's speech each decision they make has political as well as bottom-line consequences. This won't end well for them.
We need a law, not a code
Managing agents have three weeks to sign up to a voluntary code of good practice, or face ... no consequences whatsoever.
The Association of Residential Managing Agents (Arma), which is sponsoring the code, has put out an urgent call for companies to sign up.
In the main, Arma is a body trying to do the right thing; it realises that some of the abuses which go on in the property-management industry are both unacceptable and will in due course lead to legislative action. Managing agents have virtual carte blanche to spend leaseholders' money, and there have been many instances where firms have been found to have abused their positions.
Yet on its election, the Coalition Government scrapped plans to properly legislate the managing agent sector, so we are left with voluntary codes such as the one proposed by Arma. This is, of course, not good enough and sooner or later legislative action will have to ensue.
There is a lot of talk about the cost-of-living crisis. For millions of people who own their homes on a leasehold rather than freehold basis, and are being hit with inflation-busting management charges, controlling this industry is a priority. It is time politicians got a grip.
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